BRC Group Holdings, Inc. (RILY) Q3 2026 earnings review
BRC Group pays off bonds, but stock losses double net debt
BRC Group Holdings, a financial services, telecom and retail holding company, suffered a steep drop in both its investment portfolio and its operating fees. A $226.7 million loss on its stake in power equipment maker Babcock & Wilcox pushed the company to a $243.0 million net loss. Even excluding investment swings, operating revenue fell 34% from a year ago as smaller deal sizes weighed on underwriting fees and reversing second-quarter paper gains cut operating profit.
| Operating revenue, excluding investment swings | $161.3M -33.9% from a year ago |
|---|---|
| Operating profit before interest, taxes and investment swings | $2.9M $54.9M a year ago |
| Pre-tax loss on Babcock & Wilcox stake | -$226.7M stake now $160.3M |
| Net debt after cash and investments | $562.3M $285.2M last quarter |
⚖️ Verdict: 🔴 Bearish
The story got worse because the third quarter proved that the first-half balance sheet repair and fee rebound both rested on temporary investment marks. When Babcock & Wilcox shares fell and SpaceX fund fees were marked down, net debt nearly doubled from June and operating profit before interest and investment swings dropped to $3 million. One bright spot: chairman and co-chief executive Bryant Riley paid off $142 million of September bonds without issuing new shares and raised $37 million in net cash by selling GA Group.
The question now is whether the company can pay its December bond maturity and fund the $204 million Sangoma buyout without issuing more cheap stock. Either investment banking fees rebound in the fourth quarter to generate cash, or management must sell more assets or swap debt for equity. The year-end balance sheet and share count will settle it.
🐂 Bull Case
Notes Paid Without New Shares, and GA Sale Adds Cash
BRC Group Holdings, a holding company for investment banking, telecom and retail businesses, faced $142.1 million of senior notes maturing in September. In the first half of the year, the company paid off debt partly by issuing new shares, which increased its share count by 31%. In the third quarter, it redeemed the entire $142.1 million in September without issuing new common stock, keeping shares flat at 40.2 million.
Total debt fell from $1.28 billion in June to $1.14 billion in September. After the quarter ended, the firm sold its remaining stake in Great American Holdings (GA Group), an appraisal and liquidation business, to Oaktree for $62.3 million in cash. That deal trimmed Oaktree term loans from $65.6 million to $43.7 million and added $36.5 million of cash for upcoming obligations.
What to watch: how the company pays the $163.8 million of senior notes due on December 31, 2026. Paying that maturity in cash without issuing shares would show the balance sheet can handle its near-term obligations on its own.
Full Ownership of B. Riley Securities and Higher Wealth Assets
Earlier this year, the US group planned to buy back the minority shares in B. Riley Securities, its investment banking arm, and combine the unit with B. Riley Wealth, its financial planning business. On October 22, management completed the first step and restored 100% ownership of B. Riley Securities. That gives the parent company full access to the investment bank's cash flows.
Meanwhile, client assets under management at B. Riley Wealth rose to $12.8 billion in September, up from $12.1 billion in June and $11.9 billion in March. Higher client assets drove recurring advisory fees up during the quarter, even as lower commissions and investment marks pushed the wealth unit to a $3.7 million segment loss.
What to watch: regulatory approval from FINRA to finish merging B. Riley Securities and B. Riley Wealth by year-end. Completing the merger would let management cut duplicate back-office costs across the two brokerage units.
🐻 Bear Case
Babcock & Wilcox Losses Erased the Balance Sheet Gains
BRC Group uses its own balance sheet to invest in client companies alongside its banking work. During the first half of 2026, rising share prices in that portfolio did most of the work in lowering net debt, which deducts cash and investments from total borrowings. In the third quarter, the company recorded $226.7 million of pre-tax losses on its stake in Babcock & Wilcox, a power generation equipment maker.
- Babcock & Wilcox stake value: $160.3 million in September, down from $387.0 million in June
- Total investment portfolio: $408.6 million, down 49.2% from $804.5 million last quarter by our math
- Net debt: $562.3 million, up 97.1% from $285.2 million in June by our math
Because the investment book shrank by nearly half in three months, net debt almost doubled even though the company paid off $141.0 million of gross debt. That proves the first-half balance sheet recovery rested on paper gains in one unhedged stock rather than cash from operations.
What to watch: the value of the Babcock & Wilcox stake and any share sales in the fourth quarter. Further declines in that single holding would shrink the pool of liquid assets available to pay the December notes.
Core Operating Profit Nearly Vanished as Deal Fees Slowed
Chairman and co-chief executive Bryant Riley said "our operating businesses demonstrated the resilience of our diversified platform, despite third-quarter declines in the value of our investment portfolio." To show results without investment swings, the company reports Operating Revenues and Operating Adjusted EBITDA, a profit measure before interest, taxes and depreciation that removes investment gains and losses. It also updated that measure to "better bifurcate the results of its investment activities from those of its operating businesses."
Even on the company's own operating measure, profit almost disappeared. Operating Revenues fell 33.9% from a year ago to $161.3 million as "smaller average deal sizes tempered underwriting fee revenue in the quarter." Operating Adjusted EBITDA dropped 94.7% from a year ago to $2.9 million, down from $66.0 million in the second quarter.
That figure was reduced by $17.4 million from reversing a second-quarter paper gain on structured financings and marking down SpaceX fund fees. Even adding that $17.4 million back, operating profit was $20.3 million by our math, down 63.0% from a year ago. Selling, general and administrative expenses (overhead and staff pay) fell 20.5% to $114.4 million, but rose by 12.0 percentage points of Operating Revenues to 70.9% because fees fell faster.
What to watch: Services and fees revenue in the fourth quarter, after falling 34.1% from a year ago to $112.5 million. Without a rebound in investment banking fees, core operations do not cover the company's $17.8 million quarterly interest bill.
Sangoma Adds Telecom Debt While Existing Lines Shrink
BRC Group owns four phone and internet businesses — Lingo, magicJack, Marconi Wireless and UOL — alongside a consumer products unit that sells laptop cases and accessories. On September 28, management agreed to buy Sangoma Technologies, a business communications provider, for $203.7 million to "bring meaningful scale and recurring revenue to our Communications platform", Riley said.
The deal requires $38 million of cash from the parent company, about 4% in new shares, and $212.3 million in new loans that add $140.8 million of net debt to the telecom units. Meanwhile, combined revenue across the existing four telecom units fell 9.5% from a year ago to $54.6 million on "expected customer attrition", though cost cuts lifted their combined profit 4.4% to $13.2 million. Consumer Products revenue fell 16.4% to $39.3 million, and its loss widened to $4.3 million.
What to watch: closing of the Sangoma acquisition in early 2027 and combined telecom cash flow after interest on the new $212.3 million loan. Sending $38 million of parent cash into telecom leaves less cash for parent bond maturities.
Risks this quarter didn't answer
Several standing legal, balance-sheet and segment disclosures do not appear in the third-quarter earnings release and await the full quarterly filing.
- SEC investigation and litigation: the release gives no update on the June 2026 employee testimony subpoenas or pending shareholder lawsuits; the legal footnote in the quarterly filing will show any progress.
- Written-put commitments: the status of the $960 million contingent commitment to buy a client's preferred stock is not in the release; the commitments footnote in the filing will update the figure.
- Preferred stock dividend arrears: the sixth unpaid dividend triggered a board-seat right in April, and cumulative arrears stood at $12.1 million in June; the equity footnote will show the updated balance.
- Capital Markets fee breakdown: the release reports negative $90.2 million in segment revenue after trading losses, leaving pure banking services and fees for the segment to be read in the filing.
💲 Other KPIs
Deferred revenue — cash customers have paid upfront for telecom subscriptions and advisory retainers not yet delivered — fell 13.4% from a year ago and shrank by $2.0 million from last quarter. The balance has declined in every quarter of 2026, from $49.9 million in December to $48.7 million in March and $47.0 million in June, tracking telecom customer losses.
Weighted average diluted shares rose 31.5% from 30.6 million a year ago because the financial services group issued stock to retire debt and settle warrants in the first half of 2026. In the third quarter, period-end common shares stayed unchanged at 40.2 million as the company paid its September bond maturity without issuing equity.
Quarterly interest expense on the holding company's borrowings edged down 4.9% from $18.8 million a year ago and from $18.0 million in the second quarter. For the first nine months of 2026, interest costs fell 23.4% to $55.7 million as bond redemptions and debt exchanges lowered total debt from $1.43 billion to $1.14 billion.
❓ Key Questions
How will BRC Group fund the December note maturity?
The company has $163.8 million of senior notes maturing on December 31, against $145.7 million of September cash plus $36.5 million from the GA Group sale, while also committing $38 million to buy Sangoma.
What were Capital Markets services and fees before trading losses?
The segment table combines fee revenue with $125.7 million of trading losses. Investors need the standalone banking fee figure from the quarterly filing to see if the second-quarter fee recovery held up.
Has the company sold any Babcock & Wilcox shares?
The Babcock & Wilcox stake dropped in value from $387.0 million in June to $160.3 million in September on a $226.7 million pre-tax loss, leaving unclear whether any shares were sold for cash.
What did it cost to buy back B. Riley Securities?
Management restored 100% ownership of B. Riley Securities on October 22, up from 92.9% in June, but did not disclose how much cash or stock it paid for the remaining minority stake.