Good afternoon, and welcome to B. Riley Financial's fourth quarter and full year 2022 earnings call. My name is Brit, and I will be your call coordinator. B. Riley has issued a press release and financial supplement detailing its results for the fourth quarter of 2022, which can be found on its investor relation website at ir.brileyfin.com. Today's call includes prepared remarks from the company, followed by a question-and-answer session. Joining us today from B. Riley are Bryant Riley, chairman, co-founder, and co-CEO, Tom Kelleher, co-founder and co-CEO, and Philip Ahn, CFO and COO. After management's remarks, we will open the line for questions. Please note that all participants will be on a listen-only mode until the Q&A portion of the call. As a reminder, this call is being recorded. An audio replay will be available on the company's investor relations website later today.
Before we conclude today's call, I will provide the necessary cautions regarding forward-looking statements. Now I will turn the call over to Mr. Bryant Riley. Mr. Riley, you may proceed.
Welcome, and thanks for joining our call this afternoon. Throughout 2022, we continued to execute our strategy amid a tough environment, with markets taking back the investment gains we saw in 2021, contributing to a net loss of $168 million for the year. Despite the marks in our investment portfolio, we delivered operating revenues of $1.3 billion in 2022, which is close to where we were at the end of 2021 during a record year that produced operating revenues of $1.4 billion. It is important to put this into perspective. The income and losses over the last two years were largely influenced by our investment portfolio. Over the course of 2021 and 2022, our investment book is effectively flat.
During that period, we made approximately $10 per basic share and generated operating EBITDA of over $780 million. Additionally, during that time, we continued to diversify our business and implement a strategy we began five years ago, which is to invest our excess episodic cash flows into recurring operating businesses that will generate strong cash flows even when our episodic businesses are slow. Our operating performance in 2022 highlights the benefits of this strategy. To highlight this point further, consider that our investment banking and institutional brokerage business represented roughly 60% of our operating EBITDA in 2021 versus about 10% in 2022. During that same period, overall operating EBITDA declined by less than 20%.
Since our inception as a sub-$50 million market cap publicly traded company in 2014, we have delivered in excess of $21 per share or over $570 million in common stock dividends to our shareholders. We have had meaningfully up and down years, through all cycles, our diversified platform has demonstrated strength and resiliency to yield meaningful returns for our business and our shareholders, including in previous downmarket cycles. Will continue to be opportunistic. As I mentioned, we made several strategic acquisitions this past year to bolster our platform with additional uncorrelated sources of steady revenue and to enhance capabilities where we see opportunities for longer-term growth. These additions include Targus, which has already contributed meaningful growth in our results.
BullsEye Telecom and Lingo, which have enhanced the cash flows generated by our communication segment, FocalPoint, which has expanded our M&A debt and restructuring advisory capabilities as part of B. Riley Securities. In addition, we added to our receivables portfolio. This has been a great investment that continues to perform with double-digit rates of return. Since our unlevered purchase of the first portfolio for $400 million, and as of yesterday, we have recovered approximately $395 million of cash and have an incremental $154 million of current receivables. We typically recover 7%-8% of our receivables per month. The second portfolio that we purchased in partnership with Pathlight Capital is performing in line with our expectations, and we expect to have an IRR in excess of 40.
Speaking to our corporate loan portfolio, at year-end, we had 12 loans with a total failed value of $384 million. This excludes our Babcock loan receivable portfolio and a few loans under $1 million of fair value. Approximately 95% of our loan portfolio fair value was represented by secured loans. As a general view, we believe that our loan portfolio, which is almost entirely fair valued by an outside valuation firm, provides a very attractive risk-adjusted returns potential for us over the course of the year. I will outline a few highlights of our loan portfolio activity for 2022 and including activity thus far for 2023. We received a total paydown by Sorrento of their $41 million loan. We received a $15 million paydown of our Cadiz loan.
We received $11 million paydown of our Excel loan. The last loan I will update is our Core Scientific loan. We provided Core with a $42 million loan against future equity sales, which now is an unsecured claim in the bankruptcy. We also provided a $70 million DIP, of which $35 million has been funded in order to have a greater seat at the table during the bankruptcy. At the time, our $42 million loan was marked to less than $8 million, which is reflected in our 2022 results. Since that time, Bitcoin has risen from $16,500 to $24,000 , and power costs, consisting of mostly natural gas, has declined meaningfully. We will continue to utilize our balance sheet to facilitate opportunities for our clients and provide strong returns for our constituents.
In summary, we like where we sit heading into 2023 from an earnings power, liquidity, and opportunity perspective, and we will continue to keep our heads down to perform for our colleagues, our clients, our partners, and our shareholders. With that, I'll turn the call over to Phil Ahn, our CFO and COO, to discuss key financial metrics for the quarter.
Tom Kelleher, our Co-CEO, will discuss results from our business segments before we open up for questions. Over to you, Phil.
Thanks, Bryant. For the fourth quarter ending December 31, 2022, B. Riley reported total revenues of $327 million, down from $422 million in Q4 2021. Net loss available to common shareholders was $59 million or $2.08 diluted loss per share, compared to net income of $62 million or $2.08 diluted earnings per share in the prior year period. This loss primarily reflects investment losses of $124 million, representing mark-to-market declines in our investment portfolio. Excluding the marks on our investments, operating revenues increased to $450 million for the quarter, up from $353 million in Q4 2021. Operating adjusted EBITDA of $102 million compared to $106 million in the prior year period.
For the full year end December 31st, 2022, total revenues were $915 million, down from $1.7 billion from the prior year. Net loss available to common shareholders of $168 million or $5.95 diluted loss per share, compared to net income of $438 million or $15.09 diluted earnings per share in 2021. Investment loss of $404 million for the year compared to investment gains of $387 million in 2021. Again, the loss was primarily due to the impact of broad market declines throughout 2022 and its related impact on investments that we hold.
Operating revenues for the year were $1.3 billion, which was relatively flat compared to 2021, despite softness in small-cap markets and a decrease in investment banking and underwriting fees throughout 2022. Operating adjusted EBITDA was $366 million, down from $422 million for the prior year period. As a reminder, adjusted EBITDA and our metrics for operating investment results are non-GAAP financial measures. Please refer to our earnings release for a 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 on our investor relations website. Now turning to highlights from our balance sheet.
As of December 31st, we had $269 million in unrestricted cash and cash equivalents, $1.1 billion in net securities and other investments owned, and $702 million in loans receivables. Of this total, loans on non-accrual accounted for approximately $70 million of our total fair value. At year-end, we had a total cash and investment balance of approximately $2.1 billion, which includes approximately $54 million of other investments reported in prepaid and other assets. Total debt as of December 31st was approximately $2.4 billion. This includes $1.7 billion of senior notes, approximately $700 million of senior loans, and $25 million in notes payable at year-end.
We remain in compliance with all of our debt covenants, specifically with regards to our Nomura debt facility covenants, the net asset value related to our primary guarantor was in excess of $2 billion at year-end. As a result of recent additions to our platform, we have realigned our segment reporting structure to reflect organizational changes at B. Riley. The new consumer segment includes our previously reported brand segment, which historically represented licensing revenues from our six brands portfolio, and Targus, which we acquired in the fourth quarter of 2022. The consumer segment also includes revenues from our equity investments in Hurley and Justice brands, which were previously reported in the capital market segment. We have also realigned our previously reported principal investments, communications, and other segment into two separate segments, a communications segment and an all other segment.
The communications segment includes our legacy United Online and magicJack businesses, in addition to Marconi Wireless, Lingo, and BullsEye Telecom. The all other segment consists of opportunistic acquisitions in sectors unrelated to the above-described segments. Finally, our regular quarterly dividend of $1 per share will be paid on or about March 23rd to common stockholders of record as of March 10th. That completes my financial summary, and now I'll turn the call over to our co-CEO, Tom Kelleher, to provide highlights from our business divisions. Tom?
Thanks, Phil. Over the past year, we helped clients navigate challenging markets to raise capital in a liquidity-restrained environment and execute on their strategic business initiatives. At the same time, we continue to grow our platform while making enhancements to strengthen our position long term, both organically and through acquisitions. Excluding investments, our capital markets segment generated operating revenues of $542 million, with segment operating income of $232 million for the year, reflecting lower levels of investment banking and underwriting activity.
Our securities lending business continues to demonstrate resiliency amid a softer capital markets environment. After a challenging year, we realized a meaningful improvement in our capital markets business during the fourth quarter that has us optimistic for 2023. Underwriting, ATM, and banking advisory activities within B. Riley Securities all increased sequentially compared to Q3.
With notable deals completed during the quarter, including a $75 million equity follow-on for AST SpaceMobile, a $125 million combined debt and equity raise for Harrow Health, a $119 million follow-on offering for Lilium, along with several notable sell-side transactions, including the sale of Perricone Juices, as well as the sale of a prominent brand to P&G. While many issuers have opted to wait for a more accommodating market environment, we are proud to have been nimble and aggressive in helping clients opportunistically seize windows to raise capital as evidenced by our role as sole book running manager in Bed Bath & Beyond's public equity raise earlier in the month.
In our B. Riley Asset Management business, 272 Capital has maintained its performance as a top equity long short fund worldwide while adding assets and growing our institutional base. Assets under management for the business increased substantially year-over-year to $330 million as of December 31st, 2022. Turning to wealth management, revenues for this segment totaled $234 million for the year, down from $382 million in 2021. The year-over-year decrease is primarily related to our strategic realignment of this division following our acquisition of National in the first quarter of 2021, as well as reduced client activity due to the market headwinds through 2022. As part of our realignment in this business, we exited a significant amount of producing registered representatives to give us the balance we sought for the business.
Today, more than half of our wealth revenues are on a reoccurring basis. As fixed costs for this division continues to trend down, we expect to realize additional annual savings as vendor contracts roll off in the coming years. As we look ahead, we continue to invest in growing this business organically and recruiting quality advisors to our platform. Assets under management were more than $23 billion at December 31st. In our financial consulting segment, revenues totaled $99 million for the year, with segment income of $16 million for the year related to B. Riley Advisory Services and B. Riley Real Estate. During 2022, we achieved record appraisal revenue levels, expanded our forensic and litigation services division, and realized year-over-year revenue growth of 44% in our real estate division, which we established in 2020.
This segment continues to steadily perform as a source of stable revenues and profits to our platform. We continue to explore opportunities to grow this division. To that end, earlier today, we announced our acquisition of the corporate division of Farber Group, which is a Toronto-based restructuring and business advisory firm that our legacy GlassRatner team has collaborated with on cross-border engagements for over 15 years. This acquisition adds 45 professionals and enhances our suite of advisory services. In addition to restructuring and turnaround management, Farber brings specialized expertise in human capital consulting, interim management, and executive search services. This added capability supports our role when we are appointed as interim CEO, CFO, or CRO for clients navigating a restructuring and in sourcing executive talent for our clients, whether for growth or distressed situations.
This addition also extends our appraisal valuation, litigation, and forensic services to Farber's clients and provides a foundation with which to expand our capabilities in Canada. We look forward to growing our collective foothold across the North American market together. We have established a new field examination practice to complement services we provide to lenders, private equity firms, and company borrowers. Our field exam practice strengthens our in-house capabilities and offers incremental value to our clients as a service that can be performed in conjunction with an appraisal for a more streamlined process in valuing collateral. This new practice is led by a veteran valuation expert who joined us at the end of last year. We are really excited about the opportunity to grow this vertical within our appraisal division.
In our auction and liquidation segment, revenues increased to $74 million for the year, driven by an increase in retail liquidation assignments with legacy and repeat clients in the U.S. during the quarter and two large European projects which added sizable profits in December. Rising interest rates, rising labor rates, and past supply chain disruptions are all adding to retail distress and disruptions. As financial pressure continues to mount for retailers, we are starting to see positive momentum for liquidations and are optimistic about the distressed retail market going into 2023. Turning to our communication segment. With recent enhancements, our communication segment revenues increased over 150% to $236 million for the year and generated segment income of $30 million in 2022.
In 2021, this segment primarily consists of United Online and magicJack, which we acquired in 2016 and 2018 respectively. Since then, we have added Marconi Wireless in the fourth quarter of 2021, completed the acquisition of Lingo in the second quarter of 2022, and acquired BullsEye Telecom in the third quarter of 2022. We acquired all these companies on a cost basis in line with our investment thesis and stated strategy to maximize cash flows to our platform. Importantly, each of these businesses continue to perform ahead of our investment ROI goals to generate cash flow for the firm. Finally, our consumer segment revenues increased to $171 million, with segment income of $96 million for the year.
The significant increase was primarily due to the acquisition of Targus in the fourth quarter of 2022.
This segment also includes our investment in the Hurley and Justice brands and dividend income received from those investments, which totaled $28 million for the year, as well as revenues related to the licensing of trademarks for our six brands portfolio. We have a world-class team of colleagues across B. Riley who have the industry credentials and awards to rival the best in their fields. The dedication and support of teams continues to be paramount to both our and our clients collective success. We appreciate integration is a big lift and requires flexibility from all our teams, both new and old, and our colleagues continue to bring complete focus and dedication. Our people are the most valuable asset we have and we are humbled by the high caliber of professionals who represent B. Riley brand in the market every day.
With that, we will now open the line for questions and then turn it back over to Bryant for closing remarks. Thanks.
Thank you. At this time, we will conduct the question and answer session. If you'd like to ask a question, please press star one on your telephone keypad to enter the queue. If you've joined via web, please press the Raise Hand icon on the right side of your Deal Roadshow screen. Again, press star one on your telephone keypad to enter the queue or the Raise Hand icon on the right side of your Deal Roadshow screen. We'll pause here briefly to allow questions to generate. Our first question comes from Sean at Charles Lane Capital. Your line is open. You may proceed.
Hey, guys, congratulations on the quarter. Thanks for finding a better dialing this quarter. That was. Wasn't surprised. Quick question on Farber. It seems like you guys have been building out capabilities for the past couple of years. This one's you're expanding geographically. Can you just kinda discuss your vision there and if that's something you're planning on pursuing going forward?
Sure. Hey, Sean, it's Bryant. You know, there's two ways to kinda look through acquisitions. There's strategic and there's opportunistic. Farber was an opportunistic acquisition of a group of people that Ian Ratner, who runs that business, has known for a long time. He actually happens to be from Canada, but was very familiar with that group, and we found an opportunity to acquire them and add on not only capabilities, but also geographical opportunities. You know, I don't know that we weren't looking to be into Canada. We weren't looking to go to a certain region. I think it was a great fit for them. They saw the benefits that GlassRatner got.
I mean, when GlassRatner joined our firm, I think their, you know, their ability to price went up meaningfully. The jobs that they did from referrals went up meaningfully, that was part of the sales pitch to Farber. We're really excited. I think that's a great, you know, they're as excited to be here as we're excited to have them. It wasn't a, you know, an acquisition that we ran and chased and had a bake-off. It was just a really good fit. You know, we'll take those opportunities as they come.
Great. Yeah. I mean, just on that note, like, does it come with any kind of like expediting of entry into Canadian market for your other businesses, or is this just kind of separate from all that?
I don't know. TK, do you have any thoughts on that? I would say that, you know, we have been mostly domestic and to the extent, you know, if we're able to utilize those relationships, whether it's capital markets or lending or whatever. I will tell you, that's not why we did it. We did it because of the people that are coming. I wouldn't suggest that we said, "Boy, this, if we could cross-sell our products in Canada, it would be a multiplier effect," although we absolutely will try. I don't know, Tom, anything you would add?
Yeah, I would just add it's an opportunity. The base business, the forensic accounting and shareholder litigation support restructuring, that's right up Ian's alley. There's a, you know, executive search piece. There's some wealth management, some M&A expertise. Again, not a reason why we acquired it, yeah, it gives us all the opportunity to scale from what they've already put together.
Got it. Okay. That makes sense. I, you know, I know you've done this in the past, but could you just remind us the recurring, EBITDA and kind of where that settles for year?
Sure. I'll be super specific on the overall numbers then I get into the weeds a bit. For 2022, as we define recurring, it was about $325 million of operating EBITDA. To put that in perspective, we need about $310 million to pay everything, including our dividend and overhead and everything. To be able to pay for all of that with our recurring EBITDA and have, you know, two other businesses that can generate outsized returns, I feel like that puts us in a really good place. When I look out to 2023, we had a big benefit from Babcock receivables in 2022 that we have to replace them.
We didn't get the benefit of a full year of Targus, and we didn't get the benefit of a full year of Lingo and BullsEye, which kind of makes up for that, the Babcock receivable side. I would say, you know, when I look at my kind of run rate estimate of recurring and my upside estimate, my run rate is somewhere in the low $300s and my upside is in the high $300s. You know, I think we're really well. All those businesses, none of those businesses require a lot of CapEx. They are cash flow generative. I really like where we're sitting. If capital markets comes back or if liquidations comes back, I mean, you've seen that. You've been a shareholder for a while.
You can see how if those are both hitting at the same time, how powerful it can be.
Yeah, definitely. okay, great. That's all I got. Thanks for the additional transparency intra-quarter. That was very helpful. Keep it up. Thanks, guys.
All right. Thanks, Sean.
Thank you. Our next question comes from Paul at Punch and Associates. Paul, your line is open.
Hi. Good afternoon.
Hey, Paul.
Hey. A couple questions for you. First on the loan book. You know, I appreciate you guys tackling things head-on here, and given the attention it's attracted. Could you spend a little more time just talking about the underwriting process with the loan portfolio specifically and, you know, how you think about rates as well as how the loan book can fit with the rest of the business strategically?
Sure. You know, in general, for us to provide a loan, we have to think of it as enhancing a relationship, whether it's a corporate relationship where we can, you know, create incremental opportunities to create fees or, you know, we own part of the equity or whatever. Those opportunities cut us pretty fast. We have five people I think you may have met. Maybe you haven't. We have five people in our principal investment group that do a deeper underwriting. We have, we often will bring in people from GlassRatner for example, on the bad kind of receivables. Piece of our business, that is run by a guy who has receivable expertise for years and years.
On the restructuring side, you know, we've got Perry Mandarino, who runs our restructuring business, will dive in and is diving into Core Scientific. We have a risk management team. There's a, you know, there's an investment group that works through all of those opportunities and, you know, tries to figure out the right rate and size. Typically, when we're doing something, we are a bridge. So we're going to be somebody that you're gonna wanna replace, if you can. For example, a great example of that would be Harrow, where, you know, we helped that company make an acquisition, you know. That stock after that acquisition went from $11 to $16 because I think people saw the merit of it.
When they needed $120 million to do that, we provided them a combination of equity, of debt that became baby bonds and senior secured. That package, which I think we're uniquely positioned to do, not only because of our wealth management group, but also because we're willing to, you know, take a merchant banking approach, created that opportunity for them. We, you know, we own a chunk of the equity, which we did really well on. We own right now $70 million of senior secured paper, which, you know, sits on top of a $600 million market cap that is at a high rate. They, you know, I think they will probably replace that by the end of March. We own $10 million of baby bonds.
For all of that, the fee opportunity there was great, and the client was super happy. If we can put all of those pieces together, I think that differentiates us in a meaningful way. That's a general theme. You know, if we're gonna, if we're gonna have our, you know, our troubles, I think it's gonna be something that really catches us, you know, something super dramatic. I would call Core Scientific pretty dramatic. I mean, the commodity that Core Scientific serves went from $45,000 to $16,000 pretty quickly. I mean, you know, we wouldn't put on a loan title commodity, not hedge it a bit. You know, I think the face number you're seeing on the loan was all set a little.
Yeah, that one, you know, I don't think you can put as much money to work as we do and not, you know, not get caught once in a while. I think we're gonna work out of that situation a lot better than I thought before. How else can I address that, Paul?
No, that's perfect. I appreciate you riffing on that a bit. Like I said, I appreciate you guys tackling it head-on in the prepared remarks. It's good. On wealth management, can you just spend a little more time talking about, you know, what I guess the amount of time you think it'll take to get that business to the level of profitability that you were thinking of initially?
Yeah. I think if I were to grade myself over the last five years on being right around, you know, what businesses and where they were positioned, I'd give myself a pretty good grade. This one, I have not done great. I think I've felt like, you know, we were gonna get more profitable quicker. We made a decision in that business to shrink it, you know, really dedicate ourself, our service, you know, our capital to the, to what we thought were the highest and most productive wealth managers. I think we're super close. I think I said this to you last year. Obviously, you know, they do rely on some syndicates, and it was off. I think if you look at this year, I think we'll be profitable.
I, you know, when I look at my recurring piece of that business, because I've always bucketed them in recurring, I probably shouldn't. It's not, it's not big enough to think too much about, but I've got something that's all the way from -2 to +10. I think we're there. I think we are at a spot where we are very close to profitable without any incremental syndicate business. I think the quality and the partnership we have with the wealth management group that's with us is a lot better. Smaller, but a lot better. TK, Tom, anything you wanna add there?
I guess I would just say, look, it's been a tremendous amount of work. You've got, you know, two large groups of people that do things, you know, the same thing completely different. Just managing and working through all the operational headaches that come with combining companies is substantively behind us. You know, that was a big part of last year and the year before. It takes time. As Brian mentioned, you know, really excited where we sit because that's basically behind us. Rather than looking in the rearview mirror, now we can look forward and really try to figure out how to grow and scale and, you know, build the business as opposed to merging them.
Okay, perfect. On Targus, could you just, you know, spend a little bit of time on how that's getting integrated and, you know, how they're managing through. I believe most of their companies or clients are corporate. Just kinda how they're managing through this choppy labor environment.
Yeah. The beauty of Targus, and I just bear with me if I give you a little background 'cause I think it's relevant. I had worked with Michael Williams, who was the CEO of DDi. I don't know if you remember that public company, printed circuit boards. I had actually become was an activist. I became the chairman. Michael was literally, I mean, I think he was just an amazing CEO. We ended up selling that business for a big number. I asked him to join the board because I thought he was incredibly smart, and I thought he could be incredibly helpful.
He joined the board, and during the probably seven years he was on the board, he sold one public company, and then he was at Targus, and he turned Targus from what was an overleveraged bankrupt company to a business that had recapped dividends out to the shareholders and had no debt and was generating, you know, $50, mid-$50 million in EBITDA. I had said to him, as, you know, as when you want, you know, often your best investments are with people you've invested with before. I said, "If you ever wanna roll your equity in that business, like we'd love to hear about that because it's kind of fits us." It's, you know, it's a low CapEx, high cash flow business and with a great operator.
That happened, you know, that business last year did mid-$50 million EBITDA but had freight costs that were punishable as much as, like, $15 million-$20 million. I think when we underwrote that business, we assumed that the business would be off 20%-25%, but the freight savings would offset that. We underwrote it in between $50 million and $60 million. you know, if I were a betting man right now, I'd say it'd be closer to the $50 million than the $60 million. There's, you know, the channels are full. We're in it for not a month or two months, and we think we have a great operator. We're going to, you know, look at other opportunities to have add-on products. We think it's a great, you know, it's a great platform. The integration's easy.
I mean, we've got a guy that we, you know, we have a ton of respect for, that's been running it himself, reporting himself, theirselves as a company. That part of the integration, That was an opportunistic purchase that we will only try and enhance in any way we can, but we'll rely on the current management team.
Okay, great. Just pulling on that thread a little bit, you know, where are you looking to allocate capital either strategically, I guess it's harder to pick the opportunistic ones, but, you know, where do you wanna put your incremental $ in 2023?
I mean, this the risk of being controversial, we think that bridge loans to public companies where we can utilize, whether it's, you know, our relationships on the institutional side, our ability to provide different types of loans, whether it's asset backed or otherwise. you know, one of the, you know, one of the smartest things we did is we sold a lot of baby bonds at yields of 5.5% and 6%. you know, our job is obviously to pay those back, which we will. In the meantime, we've got a four-year runway of a very low cost of capital. If we can...
You know, when I look at it right now, if we can utilize our balance sheet to make some, you know, really interesting investments, get, you know, mid-teens type of returns, and also enhance that with, you know, maybe a bigger mandate, whether it's sell side or whatever, those opportunities are pretty prime, you know. It's tight out there if you're a public company looking for money quickly, and we think we can be helpful.
Okay, great. That's it for me. Thanks for your time, and thanks for the work this quarter.
Thank you. Thanks, Paul.
Thank you. Our next question comes from Thompson at [Moldova Economics] . Your line is open.
Hey, Bryant. Thanks for the, thanks for the time. A lot of my questions have been answered. I saw the net debt for the quarter is, you know, net of cash investments went negative. Any target you guys are looking for there? Where do you wanna be for that?
Well, I mean, we wanna have ton of net cash, but what are we, you know, what are we accepting of? Look, if I were to sit here and say, we paid out $580 million to our shareholders. I don't know what we bought in back in stock. I think that was dividends. We also bought back another, I don't know the number, but a meaningful number. We've had some pretty tough marks. I mean, this was a tough year for everybody in the small cap world. We are less than 1x levered, and that's a pretty good spot. Like, I feel really good about that. I don't know. I mean, I think we could be 2.5x, 3x levered.
I don't think we're going to get there because I think our business is going to earn itself out of that. I think our portfolio is at a, kind of a, at a discount. You know, I think a business like ours that's got a meaningful piece of recurring that doesn't have a lot of CapEx and working capital needs associated with it could lever up some more, but we just have to be cognizant that, you know, we've got some volatile businesses. You know, if you look at the B. Riley Securities business in the last three years, you had operating EBITDA of $138, $264, and $27. I mean, that's. You know, that is what it is. I'm really pleased we made money.
A lot of people grew during 2021 and lifted their overhead, we were pretty careful. That's a tough thing to manage, and we always manage for the downside. When I do those numbers and when I do that 1x leverage, that's managing for the downside in the, in the brokerage business. That business can turn meaningfully. If it does, I think we're really well positioned. I mean, the markets open up in November. You know, sub-$1 billion non-healthcare deals, I think, I don't know how many there were, but we did five, and the next person did two, and all of those are up. I think they were opportunistic deals. I like our balance sheet. I like. I don't sweat our net debt.
We could have more, but we're gonna be really. You know, we're gonna be cautious. Again, just realize that of our debt that comes due, over $1.2 billion doesn't come due at the end of 2026 and going into 2028. We've got a long runway to make a lot of money on those spreads. We feel like we're in a pretty good position.
Great. Yeah, super helpful. Looking at the loans receivable for the end of the year, $700 million. Can you just break down a little bit, you or Phil, break down a little bit kind of what's in there? We've got Badcock and we've got Babcock. Can you kind of get through those and then any other big ones?
Phil, do you, well, I think you break it up between Badcock and I think there's some notable ones are out there. You know, some of our loans are related to, you know, we'll provide margin services for customers with, you know, large share amounts. Like, it's kind of all over the place. I obviously wouldn't mention those types, those people by name. We have loans all over, and the average loan is $32 million. Is it $32 million? Is that what we said, Phil?
Yeah. Excluding Badcock's average fair value per name is roughly $32 million.
Across 13 names. The duration on those should be less than a year. They should be three to six months. Our goal is to provide a bridge loan, and, you know, help a client out, and let them get to a more. A lender that's going to be longer term, doesn't have the same kind of capital, returns that we would require, We're helping them get a deal done.
Okay, great. In that, total cash investments, the private equity, you know, about $394 million, any color there? What's in there?
I don't know. Phil, you wanna walk through that in a little bit?
Sorry. Yeah, let me just, let me pull through a couple things here.
Well, I'll give you, I'll give you a few examples. We.
Sure.
We have a VC portfolio that. We brought on a VC team three years ago. We utilized that group to find proprietary investments for our wealth management group. Average investment in that is probably $7 million. The average banking fee associated with those has been, you know, probably 10% of the invested capital. We utilize that to enhance our banking fees. We have opportunistically purchased a few energy assets that we saw, and we were uniquely positioned for that have done okay. That's part of that. Is our brands in that private equity side, Phillip?
We've got our Six Brands as well.
Okay.
We've got Hurley and Justice, though, you know.
Got it. Okay. Yeah, that's helpful. Yeah, I think that's it for me. I appreciate the time and the questions.
All right. Thank you.
Thank you. Our next question comes from Keith at Cruiser Capital Advisors. Keith, your line is open.
Thank you.
Hi, Keith.
Hey, Bryant. Hey. Could you elaborate a little bit on the operating earnings that you've guided to the non-episodic operating earnings? Does that, I think you said $324 million?
Yeah.
Does that include a full year of Targus, or is Targus additive to that?
Targus is additive. Targus contributed about, this is rough, $11 million for the year. We acquired that in mid-October, maybe $12 million.
If we were to run rate that for next year, it would be $20 million.
Well, what I would say is, I don't think we're going to find. We've freed up a lot at $400 million over the course of, you know, 14 months on Badcock. We, as I mentioned in the call, we still have $157 million receivables.
Yeah.
We think that It says double. We think that return will be, IRRs will be 25%-30%. That money is being put back to work in other opportunities. I don't think it's gonna be put back to work at the kind of you know, those kind of IRRs. The contribution from Badcock comes in a bit. To offset, you know, maybe some of that Targus. The Lingo and the BullsEye kind of are the small telecom businesses that we have, they only contributed in 2022, you know, $9 million, $10 million in Lingo and BullsEye, which is a acquisition we made together. I have them contributing closer to 25 in 2023. They didn't contribute for the whole year either.
There's definitely the run rate's higher than the 2022 average. I would just say Babcock would be the most meaningful detractor.
Okay. okay. On the Babcock & Wilcox receivables themselves, you know, one of the.
This is Badcock Furniture.
I understand. I'm talking about the receivables to Babcock & Wilcox. Sorry. Just clarifying. One of the elements of the short report was questioning the caliber or quality of those receivables or the loan. You know, what has been the overall, you know, I guess, default rate, you know, how would you categorize the quality of the loans?
I think we're mixing two things. I think the criticism was on our backstopping of LCs for Babcock and Wilcox. We backstopped for a relatively low rate, about $100 million of LCs. That Babcock, you know, as we're a big shareholder and we're a partner of theirs, we didn't put up any of the money. We just backstopped it. There was a question of why we did that for a low rate. Babcock and Wilcox has not walked away from an LC in 20-plus years. Their business took off, as, you know, as COVID started to clear up, and they just needed help in financing LCs. I view that as non-controversial and zero risk.
Mm-hmm.
Babcock is the receivable package that we bought for $400.
Right.
The underwriting of that, so you understand, is that we bought 500. We bought those at $0.75 on the dollar. We bought roughly, and I'm doing this off memory, but somewhere around $530 million of receivables. Obviously, there's an interest rate associated with the receivables. There's an insurance associated with that receivables. Charge-offs are a meaningful portion. It is a customer that, you know, is a FICO score customer, but that's how it's priced. The net-net of that, which I think is the most important part, because you can. The write-offs are somewhat irrelevant, is that we invested $400 million. We have gotten back $396 million.
We have $156 million of receivables that are in good standing, and we've written off a rough $90 million-$95 million of receivables, which we think will recover 5%-10%. If you mix all of that up, you get a total return of, you know, IRRs of 25%-30%. Of that $156 million that we still have, we'll probably recover 65%-70%, and we'll recover, you know, 5%-10% a year of the charge-off. It's been a great investment. I mean, we get our money back every month. We get like, our initial receivables, every month, we get 8%-9% back. When we started with $520 million, that first month, we got back $40 million.
It's been a great place during a very difficult market to have an unlevered portfolio that's generating a bunch of cash for us and is like, you know, it's almost like we put money in the piggy bank in 2021 at a decent time. We had sold some equities to do that, and it's coming back. That $400 million we put in the piggy bank is coming back close to, you know, $530 million.
Got it. Okay.
That's the nature of the beast. That's the nature of the receivable. I don't really, you know. That's Babcock's business.
Okay. Thanks, guys. I appreciate the clarification on the Babcock.
Sure. No problem. Operator, any other questions?
Our next question comes from Keith with Cruiser. Pardon me. Our next question comes from Steve with Schonfeld Strategic Advisors. Steve, your line is open.
Hi, guys, congrats on the adjusted operating EBITDA in a tough environment.
Thanks, Steve.
Maybe just staying on the high level here. In 2020 and 2021, well, I guess going back, you guys had never had over $100 million of net cash from operations. With interest expense now over $175 million annual rate and negative tangible book value, when you think of the dividend, what do you think of the funding model for this dividend? What's gonna be the source to fund this? Because obviously you have the cash available to pay it down, but I guess just the sustainable funding of the dividend.
Yeah. I feel like you're... as I mentioned, in 2022, our recurring EBITDA funded our dividend, funded our taxes, and funded our overhead. That number, which is $310 million, was funded by $324 million of what we, what we define as recurring EBITDA. That's how we're funding the dividend. Then you have two other businesses. Yeah, we didn't do $100 million, what'd you say? $100 million in cash flow. Well, you know, we've grown our business from, a brokerage business that started with 10 people that did over $200 million in EBITDA. That business is gonna be up and down, but we...
We haven't lost money in that business and for more than a month, like in four years. We'll make money in that business, and that'll be incremental cash flow.
Got it. Okay. Then, and thinking of that core capital market service and fee. It's been the $65 million-$70 million run rate on that line. The third quarter had $42 million of incentive fees. Could you just remind me if that was cash or non-cash, what drove those? If that number is in that adjusted EBITDA and, if, you know, if that's in-
Are we talking about the PRSUs there?
There was $42 million of incentive fees in the third quarter Q, I saw. That is what lifted that line from the $65 million-$70 million run rate up. I just wanna know what was that incentive fee? Was it cash, non-cash, and what we can expect and if that was in the $310 million of EBITDA you called out.
Well, it wasn't in the $310 million EBITDA because we don't have any incentive fees. In that, Phil, can you respond to that?
Yeah, I think we're gonna. You know what? Why don't, Steve, why don't we follow up with you? I'm not sure exactly the incentive fee you're referring to there.
Okay. All right. Great. Yeah, it's just in the third quarter Q, but if it's better to go through that in more detail later, I'm happy to do that.
Great.
Okay. Thanks, guys.
Thank you.
Thank you. This concludes our question and answer session. I'd now like to turn the call back to Mr. Riley for his closing remarks.
Okay. Well, thank you. Thank you, everyone. I saw 480 people on this call, which I think is a record. I think a lot of people work at the firm. They've entrusted their careers with us. We take that with a ton of responsibility. We know that there's been a lot of noise, a lot of inaccuracies floating out there. Hopefully, we addressed it. We think we're incredibly well-positioned as we move forward in 2023, as we've kinda laid out on a, on a recurring and episodic side. We think we have a great runway, and we're very appreciative to everybody that has, you know, that helps us get there.
To our shareholders, you know, we know we're a somewhat difficult story, and we have some ups and downs, but overall, I think we've performed and, we, you know, we're dedicated to continue to perform. Thank you for giving us that opportunity. Thank you, everyone.
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 that are not descriptions of historical facts are forward-looking statements that are not 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 today's date. Such forward-looking statements include, but are not limited to, statements regarding our excitement and the expected growth of our business segments.
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