Heritage Global Inc. Announces 2021 Second Quarter Results

Rhea-AI Summary

Heritage Global (NASDAQ: HGBL) reported its Q2 2021 financial results, indicating challenges due to limited asset flow in both financial and industrial sectors. Operating income fell to $73,000 from $1,024,000 year-over-year, with net income dropping to $587,000 ($0.02 per share) compared to $2,039,000 ($0.07 per share) in Q2 2020. Despite these declines, CEO Ross Dove expressed optimism for increased asset flow in the latter half of 2021 as economic conditions improve and consumer borrowing rises. The company maintains a strong balance sheet, with stockholders’ equity at $31.0 million.

Positive

• The company achieved profitability in Q2 2021 despite a challenging market.
• Heritage Global maintains a strong balance sheet with stockholders’ equity of $31.0 million.

Negative

• Operating income decreased from $1,024,000 in Q2 2020 to $73,000 in Q2 2021.
• Net income fell from $2,039,000 ($0.07 EPS) in Q2 2020 to $587,000 ($0.02 EPS) in Q2 2021.
• EBITDA declined from $1,114,000 in Q2 2020 to $171,000 in Q2 2021.

Heritage Global Inc. (NASDAQ: HGBL) (“Heritage Global,” “HGI” 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, 2021.

Heritage Global Chief Executive Officer Ross Dove commented, “This was a challenging quarter, characterized by limited asset flow volumes across both our financial and industrial businesses. The auction industry overall saw a slowdown in large transactions in the quarter as clients took a ‘wait and see’ approach to plant closings as they evaluate what the post-pandemic landscape will look like. Similarly, the financial asset side of our business was impacted by the combination of ongoing stimulus payments and hesitancy around the release of non-performing loans into the market. Despite these factors, our experienced team effectively managed through these headwinds to gain market share and achieve continued profitability in the quarter.

“Looking forward, with our visibility today, we are optimistic about asset flow through the balance of 2021, as after a long delay in financial assets coming to market, consumer borrowing is rising significantly and stimulus payments are tapering off, likely leading to the increase of non-performing loans. Our pipeline is robust, and we have also onboarded a strong borrower base for Heritage Global Capital. Furthermore, we expect increased industrial asset flow in the second half of 2021 as large, multi-national corporations look for sustainable lifecycle management as they retire and dispose of obsolete equipment.”

Mr. Dove concluded, “We believe we are well-positioned to capitalize as the changing U.S. economy promotes a rising flow of assets in the marketplace. We remain confident in our ability to advance our leadership position and drive growth through the remainder of 2021.”

Second Quarter 2021 Summary of Financial Results:

($ in thousands, except per share amounts)	Quarter Ended June 30,							Six Months Ended June 30,
	2021				2020			2021				2020
Operating income	$	73			$	1,024		$	1,119			$	1,118
Net income	$	587			$	2,039		$	1,619			$	2,077
Net income per share – diluted	$	0.02			$	0.07		$	0.04			$	0.07
(Non-GAAP Financial Measures) (1)
EBITDA	$	171			$	1,114		$	1,308			$	1,298
Adjusted EBITDA	$	239			$	1,200		$	1,719			$	1,459

(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.

Second Quarter 2021 Highlights:

• The Company achieved operating income of $0.1 million for the second quarter of 2021, as compared to operating income of $1.0 million in the second quarter of 2020.
• Net income of $0.6 million, or $0.02 diluted earnings per share for the second quarter of 2021, as compared to net income of $2.0 million, $0.07 diluted earnings per share in the second quarter of 2020.
• EBITDA totaled $0.2 million in the second quarter of 2021 versus EBITDA of $1.1 million in the second quarter of 2020 and Adjusted EBITDA (excluding non-cash stock-based compensation) was $0.2 million compared to $1.2 million in the prior-year quarter.
• Heritage Global maintains a strong balance sheet, with stockholders’ equity of $31.0 million as of June 30, 2021, compared to $29.9 million as of December 31, 2020, and net working capital of $12.6 million.

Second Quarter 2021 Conference Call

Management will host a webcast and conference call on Thursday, August 12, 2021 at 5:00 pm ET to discuss financial results for second quarter 2021. Analysts and investors may participate via conference call, using the following dial-in information:

• 1- 800-954-0645 (Domestic)
• 1-312-429-0433 (International)

The conference call will also be available in the Investor Relations section of the Company's website at http://www.hginc.com/. To listen to a live broadcast, go to the site at least 15 minutes prior to the scheduled start time in order to register.

A replay of the call will also be available on the Company's website approximately two hours after the live call through August 26, 2021. To access the replay, dial 1-844-512-2921 (domestic) or 1-412-317-6671 (international). The replay pin number is 21996563. The replay can also be accessed on the Investor Relations section of the Company's website at http://www.hginc.com/.

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 and separation costs. 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).

About Heritage Global Inc. (www.heritageglobalinc.com)

Heritage Global Inc. (NASDAQ: HGBL) is an asset services company specializing in financial and industrial asset transactions. The company provides a full suite of services including market making, acquisitions, dispositions, valuations and secured lending. Heritage Global focuses on identifying, valuing, acquiring and monetizing underlying tangible and intangible assets across twenty-eight global sectors. The company acts as an adviser, as well as a principal, acquiring or brokering turnkey manufacturing facilities, surplus industrial machinery and equipment, industrial inventories, accounts receivable portfolios, intellectual property, and entire business enterprises.

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.

HERITAGE GLOBAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands of US dollars, except share and per share amounts)
(unaudited)

		Three Months Ended June 30,								Six Months Ended June 30,
		2021				2020				2021				2020
Revenues:
Services revenue		$	4,168			$	5,565			$	9,198			$	9,653
Asset sales			1,008				552				3,079				708
Total revenues			5,176				6,117				12,277				10,361
Operating costs and expenses:
Cost of services revenue			960				1,188				2,135				1,739
Cost of asset sales			375				330				1,195				368
Selling, general and administrative			3,671				3,666				7,640				7,138
Depreciation and amortization			98				90				189				180
Total operating costs and expenses			5,104				5,274				11,159				9,425
Earnings of equity method investments			1				181				1				182
Operating income			73				1,024				1,119				1,118
Interest and other expense, net			9				(8	)			12				(35	)
Income before income tax benefit			82				1,016				1,131				1,083
Income tax benefit			(505	)			(1,023	)			(488	)			(994	)
Net income		$	587			$	2,039			$	1,619			$	2,077
Weighted average common shares outstanding – basic			35,250,964				28,751,689				35,020,768				28,760,893
Weighted average common shares outstanding – diluted			36,972,415				30,961,261				36,611,234				30,630,713
Net income per share – basic		$	0.02			$	0.07			$	0.05			$	0.07
Net income per share – diluted		$	0.02			$	0.07			$	0.04			$	0.07

The accompanying notes are an integral part of these condensed consolidated financial statements.

HERITAGE GLOBAL INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands of US dollars, except share amounts)

		June 30, 2021				December 31, 2020
		(unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	17,525			$	23,385
Accounts receivable			2,514				1,496
Current portion of notes receivable, net			1,086				1,338
Inventory – equipment			161				235
Other current assets			676				498
Total current assets			21,962				26,952
Non-current portion of notes receivable, net			1,225				748
Equity method investments			2,893				2,402
Right-of-use assets			2,940				963
Property and equipment, net			108				130
Intangible assets, net			2,989				3,123
Goodwill			5,585				5,585
Deferred tax assets			4,933				4,402
Other assets			161				250
Total assets		$	42,796			$	44,555
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities		$	8,834			$	13,609
Current portion of lease liabilities			494				380
Total current liabilities			9,328				13,989
Non-current portion of lease liabilities			2,485				623
Total liabilities			11,813				14,612
Stockholders’ equity:
Preferred stock, $10.00 par value, authorized 10,000,000 shares; issued and outstanding 568 shares of Series N as of June 30, 2021 and December 31, 2020			6				6
Common stock, $0.01 par value, authorized 300,000,000 shares; issued and outstanding 36,284,382 shares as of June 30, 2021 and 35,281,183 as of December 31, 2020			363				353
Additional paid-in capital			292,811				293,400
Accumulated deficit			(262,197	)			(263,816	)
Total stockholders’ equity			30,983				29,943
Total liabilities and stockholders’ equity		$	42,796			$	44,555

The accompanying notes are an integral part of these condensed consolidated financial statements.

HERITAGE GLOBAL INC.
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,
		2021				2020				2021				2020
Net income		$	587			$	2,039			$	1,619			$	2,077
Add back:
Depreciation and amortization			98				90				189				180
Interest and other expense, net			(9	)			8				(12	)			35
Income tax benefit			(505	)			(1,023	)			(488	)			(994	)
EBITDA			171				1,114				1,308				1,298
Management add back:
Stock based compensation			68				86				211				161
Separation Agreement			—				—				200				—
Adjusted EBITDA		$	239			$	1,200			$	1,719			$	1,459

The notes contained in our Quarterly Report on Form 10-Q are an integral part of these consolidated financial statements.

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FAQ

What were Heritage Global's Q2 2021 financial results?

Heritage Global reported a Q2 2021 operating income of $73,000 and net income of $587,000 ($0.02 per share), a decline from $1,024,000 and $2,039,000 ($0.07 per share) in Q2 2020.

How did Heritage Global perform compared to last year?

In comparison to Q2 2020, Heritage Global's operating income, net income, and EBITDA all saw significant declines in Q2 2021.

What is the outlook for Heritage Global for the remainder of 2021?

CEO Ross Dove expressed optimism about increased asset flow and market positioning for the latter half of 2021.

What is the stock performance of Heritage Global (HGBL)?

Heritage Global's financial performance in Q2 2021 indicates challenges, which may affect investor sentiment regarding the stock performance of HGBL.