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Heritage Global Inc. Reports Net Operating Income of $3.1 Million for Second Quarter 2023; Record Net Operating Income of $7.0 Million for First Half of 2023

– Financial Assets Division Reports 185% Growth in Operating Income for First Six Months of 2023 –

Aug 10, 2023 04:05 PM Eastern Daylight Time

SAN DIEGO – (BUSINESS WIRE) – Heritage Global Inc. (NASDAQ: HGBL) (“Heritage Global,” “HG” or “the Company”), an asset services company specializing in financial and industrial asset transactions, today reported financial results for the second quarter and six months ended June 30, 2023.

Second Quarter and First Six Months 2023 Summary of Financial Results:

($ in thousands, except per share amounts) Three Months Ended

June 30,

Six Months Ended

June 30,

2023   2022 2023   2022
Operating income      $     3,101 $        3,624      $    6,995      $    4,499
Net income     $     2,779 $        2,578     $    5,608     $    3,223
Net income per share – diluted $       0.07 $          0.07 $      0.15 $      0.09
(Non-GAAP Financial Measures) (1)
EBITDA      $     3,222 $        3,757      $    7,236      $    4,765
Adjusted EBITDA      $     3,450  $        3,865      $    7,643      $    4,979

(1) EBITDA and Adjusted EBITDA are commonly used non-GAAP financial measures utilized by management as a supplemental tool to evaluate the underlying operating performance of the Company on an ongoing basis and should be considered together with Heritage Global’s GAAP financial measures. Definitions and disclosures regarding non-GAAP financial information including reconciliations are included at the end of the press release.

Heritage Global Chief Executive Officer Ross Dove commented, “We continued to drive operational execution across our business in the second quarter, resulting in solid net operating income of $3.1 million, characterized by particularly strong growth in our financial assets division. Both of our operating divisions are seeing tremendous opportunities in the marketplace, as the challenging economy is creating heightened volume in the financial and industrial assets coming to market.

“As has been widely reported, consumer debt has reached record levels, creating corresponding growth in the volume of non-performing loans and charged-off credit card accounts. Our second quarter and first half results from our financial assets division reflect these increased volumes and more importantly, illustrate our ability to capitalize on the economic landscape as we win brokerage contracts and specialty lending opportunities. With interest rates ticking higher and the inflationary environment driving consumers to make necessary purchases on credit rather than with cash, we expect to see continued growth in our financial assets business.

“This increased asset flow is also evident in our pipeline and calendar for upcoming industrial auctions, as businesses scale down staff and close offices and operating facilities. As we have mentioned before, our auction business will vary from quarter to quarter, but our auction pipeline presently is robust and we are confident that we will continue to see substantial activity in our industrial assets division as we move through the balance of 2023.

“We are pleased with our performance to date this year and especially proud to have achieved record net operating income of $7.0 million for the first six months of 2023. As we move through the balance of the year, we are energized about building on the momentum created in the first half and believe we are ideally positioned to compete for and win the exciting opportunities we are seeing across the markets in which we operate,” Mr. Dove concluded.

Second Quarter 2023 Highlights:

  • The Company achieved operating income of $3.1 million for the second quarter of 2023, as compared to operating income of $3.6 million in the second quarter of 2022.
  • Net income totaled $2.8 million, or $0.07 diluted earnings per share for the second quarter of 2023, as compared to net income of $2.6 million, or $0.07 diluted earnings per share in the prior-year quarter.
  • EBITDA totaled $3.2 million in the second quarter of 2023 versus EBITDA of $3.8 million in the second quarter of 2022 and Adjusted EBITDA was $3.5 million compared to $3.9 million in the prior-year quarter.
  • Heritage Global maintains a strong balance sheet, with stockholders’ equity of $54.2 million as of June 30, 2023, compared to $48.3 million as of December 31, 2022. Net working capital was $15.5 million at the end of the second quarter.
  • During the quarter, Heritage announced a new and enhanced $17.0 million credit facility which includes the renewal of its existing $10.0 million line of credit as well as a new $7.0 million term loan.
  • As of June 30, 2023, our total balance related to investments in loans to buyers of charged-off and nonperforming receivable portfolios was $29.9 million, of which $15.0 million is classified as Notes Receivable and $14.9 million is classified as Equity Method Investments.

Second Quarter Conference Call
Management will host a webcast and conference call today, Thursday, August 10, 2023, at 5:00 pm ET to discuss financial results for second quarter 2023. Analysts and investors may participate via conference call using the following dial-in information:

  • 1-877-423-9813 (Domestic)
  • 1-201-689-8573 (International)

In addition, individuals can use this link for telephone access to the call via their web browser. The webcast link is available here and will be available in the Investor Relations section of the Company’s website. To listen to a live broadcast, go to the site at least 10 minutes prior to the scheduled start time in order to register.

A replay of the call will be available on the Company’s website approximately three hours after the call ends through August 24, 2023. To access the replay, dial 1-844-512-2921 (domestic) or 1-412-317-6671 (international). The replay pin number is 13740018. The replay can also be accessed on the Investor Relations section of the Company’s website.

About Heritage Global Inc.
(NASDAQ: HGBL) values and monetizes industrial & financial assets by providing acquisition, disposition, valuation, and lending services for surplus and distressed assets. This aids in facilitating the circular economy by diverting useful industrial assets from landfills and operating an ethical supply chain by overseeing post-sale account activity of financial assets. Specialties consist of acting as an adviser, in addition to acquiring or brokering turnkey manufacturing facilities, surplus industrial machinery and equipment, industrial inventories, real estate, charged-off account receivable portfolios, through its two business units: Industrial Assets and Financial Assets.

Definitions and Disclosures Regarding non-GAAP Financial Information
The Company defines EBITDA as net income/loss plus depreciation and amortization, interest and other expense, and provision for income taxes. Adjusted EBITDA reflects EBITDA adjusted further to eliminate the effects of stock-based compensation. Management uses EBITDA and Adjusted EBITDA in assessing the Company’s results, evaluating the Company’s performance and in reaching operating and strategic decisions. Management believes that the presentation of EBITDA and Adjusted EBITDA, when considered together with our GAAP financial statements and the reconciliation to the most directly comparable GAAP financial measure, is useful in providing investors a more complete understanding of the factors and trends affecting the underlying performance of the Company on a historical and ongoing basis. The Company’s use of EBITDA and Adjusted EBITDA is not meant to be, and should not be, considered in isolation or as a substitute for, or superior to, any GAAP financial measure. You should carefully evaluate the financial information, below, which reconciles our GAAP reported net income to EBITDA and Adjusted EBITDA for the periods presented (in thousands).

Forward-Looking Statements
This communication includes forward-looking statements based on our current expectations and projections about future events. For these statements, the Company claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. While the Company believes the forward-looking statements contained in this communication are accurate, these forward-looking statements represent the Company’s beliefs only as of the date of this communication, and there are a number of factors that could cause actual events or results to differ materially from those indicated by such forward-looking statements, including variability in magnitude and timing of asset liquidation transactions, the impact of changes in the U.S. national and global economies, and interest rate and foreign exchange rate sensitivity, as well as other factors beyond the Company’s control. Unless required by law, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In light of these risks, uncertainties and assumptions, you should not place undue reliance on these forward-looking statements, which speak only as of the date of this release. For more details on factors that could affect these expectations, please see our filings with the Securities and Exchange Commission.

-financial tables follow-

 (In thousands of US dollars, except share and per share amounts)

    Three Months Ended June 30,     Six Months Ended June 30,  
    2023     2022     2023     2022  
Services revenue $ 9,810 $ 4,595 $ 20,055 $ 8,763
Asset sales 3,288 6,470 9,655 11,659
Total revenues 13,098 11,065 29,710 20,422
Operating costs and expenses:
Cost of services revenue 1,807 910 4,147 1,664
Cost of asset sales 1,935 5,631 6,270 9,033
Selling, general and administrative 6,440 4,939 12,740 9,214
Depreciation and amortization 121 133 241 266
Total operating costs and expenses 10,303 11,613 23,398 20,177
Earnings of equity method investments 306 4,172 683 4,254
Operating income 3,101 3,624 6,995 4,499
Interest expense, net (101) (37) (169) (75)
Income before income tax expense 3,000 3,587 6,826 4,424
Income tax expense 221 1,009 1,218 1,201
Net income $ 2,779 $ 2,578 $ 5,608 $ 3,223
Weighted average common shares outstanding – basic 36,700,830 36,103,198 36,627,200 36,053,729
Weighted average common shares outstanding – diluted 37,651,694 36,999,614 37,504,023 36,846,539
Net income per share – basic $ 0.08 $ 0.07 $ 0.15 $ 0.09
Net income per share – diluted $ 0.07 $ 0.07 $ 0.15 $ 0.09

(In thousands of US dollars, except share and per share amounts)

    June 30, 2023     December 31, 2022  
ASSETS (unaudited)  
Current assets:
Cash and cash equivalents $ 15,035 $ 12,667
Accounts receivable, net 2,912 988
Current portion of notes receivable, net 8,569 4,505
Inventory – equipment 5,049 4,619
Other current assets 988 1,113
Total current assets 32,553 23,892
Non-current portion of notes receivable, net 6,400 4,245
Equity method investments 15,778 13,973
Right-of-use assets 2,856 2,776
Property and equipment, net 1,745 1,571
Intangible assets, net 3,949 4,144
Goodwill 7,446 7,446
Deferred tax assets 9,085 9,449
Other assets 70 64
Total assets $ 79,882 $ 67,560
Current liabilities:
Accounts payable and accrued liabilities $ 6,531 $ 8,924
Payables to sellers 8,085 3,188
Current portion of third party debt 1,681 3,411
Current portion of lease liabilities 777 703
Total current liabilities 17,074 16,226
Non-current portion of third party debt 6,382 871
Non-current portion of lease liabilities 2,181 2,164
Total liabilities 25,637 19,261
Stockholders’ equity:
Preferred stock, $10.00 par value, authorized 10,000,000 shares; issued and outstanding 563 and 565 shares of Series N as of June 30, 2023 and December 31, 2022, respectively; with liquidation preference over common stockholders equivalent to $1,000 per share 6 6
Common stock, $0.01 par value, authorized 300,000,000 shares; issued 37,145,151 and 36,932,177 shares as of June 30, 2023 and December 31, 2022, respectively; and outstanding 36,901,683  and 36,688,709 shares as June 30, 2023 and December 31, 2022, respectively 371 369
Additional paid-in capital 294,156 293,589
Accumulated deficit (239,893) (245,270)
Treasury stock at cost, 243,468 shares as of June 30, 2023 and December 31, 2022 (395) (395)
Total stockholders’ equity 54,245 48,299
Total liabilities and stockholders’ equity $ 79,882 $ 67,560

 – EBITDA and Adjusted EBITDA (non-GAAP measures) reconciliation follows –

Reconciliation of EBITDA and Adjusted EBITDA (Non-GAAP Measures)
(In thousands of US dollars) (unaudited)

    Three Months Ended June 30,     Six Months Ended June 30,  
    2023     2022     2023     2022  
Net income $ 2,779 $ 2,578 $ 5,608 $ 3,223
Add back:
Depreciation and amortization 121 133 241 266
Interest expense, net 101 37 169 75
Income tax expense 221 1,009 1,218 1,201
EBITDA   3,222 3,757   7,236 4,765
Management add back:
Stock based compensation 228 108 407 214
Adjusted EBITDA   $ 3,450 $ 3,865   $ 7,643 $ 4,979

John Nesbett/Jennifer Belodeau
IMS Investor Relations