Heritage Global Inc. Delivers Continued Sequential Growth and Its Strongest Operating Income of the Year in Q4 2021

Rhea-AI Summary

Heritage Global Inc. (NASDAQ: HGBL) reported its fourth quarter and full year 2021 results, showcasing a sequential increase in operating income, which rose more than 160% to $1.4 million compared to $0.5 million in Q3 2021. However, net income decreased to $1.0 million from $6.3 million in Q4 2020, reflecting prior year benefits from a real estate transaction. The company anticipates growth in non-performing loans and sees opportunities in sustainable asset disposal. Equity rose to $32.6 million, signaling financial stability.

Positive

• Operating income grew 160% sequentially to $1.4 million compared to Q3 2021.
• Equity increased to $32.6 million, from $29.9 million year-over-year.
• Anticipates significant growth in non-performing loans market in 2022.

Negative

• Net income fell to $1.0 million in Q4 2021, down from $6.3 million in Q4 2020.
• Q4 2021 operating income decreased by 59% compared to Q4 2020.

SAN DIEGO--(BUSINESS WIRE)-- 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 fourth quarter and year ended December 31, 2021.

Heritage Global Chief Executive Officer Ross Dove commented, “We drove continued momentum in fourth quarter 2021, with sequential improvement across key financial metrics as compared to third quarter 2021. Fourth quarter operating income grew more than 160% to $1.4 million as compared to $0.5 million in the third quarter of 2021 and net income more than doubled to $1.0 million as compared to $0.5 million in third quarter 2021. It is important to note that while operating income was lower than the previous year, the fourth quarter of 2020 included $2.3 million in net profit related to our first completed real estate transaction from our Huntsville partnership holdings.

“As we’ve previously discussed, we are well positioned in both our Financial Assets Division and in our Industrial Assets Division. On the Financial Assets side of our business, during the past 18 months there have been delays in charge-offs coming to market, as consumers used stimulus money to pay down loans. However, consumer borrowing is on the rise as people resume historical shopping and travel behaviors. During fiscal 2022, we anticipate a significant uptick in the volume of non-performing loans coming to market, and we’re positioned to benefit from that volume.

“In our Industrial Assets Division, we’re encouraged by the opportunities we’re seeing as our client base focuses not just on profitably disposing of surplus equipment and assets, but the environmentally sound disposal of these assets. As our manufacturing and industrial clients focus on sustainability, we expect to see more equipment go to auction rather than to the landfill – which is good for our business and good for the planet,” stated Mr. Dove.

Mr. Dove concluded, “At Heritage Global Capital, we continue to work with an active and growing group of borrowers, and our pipeline is strong. We’re pleased to have closed 2021 with another profitable quarter, and as the lending and spending landscape continues to improve, we expect to see continued momentum as we move through 2022.”

Fourth Quarter & Year End 2021 Summary of Financial Results:

($ in thousands, except per share amounts)	Three Months Ended December 31,					Year Ended December 31,
	2021			2020		2021			2020
Operating income	$	1,362		$	3,329	$	3,014		$	6,059
Net income	$	960		$	6,317	$	3,053		$	9,658
Net income per share – diluted	$	0.03		$	0.17	$	0.08		$	0.30
(Non-GAAP Financial Measures) (1)
EBITDA	$	1,528		$	3,419	$	3,474		$	6,421
Adjusted EBITDA	$	1,623		$	3,514	$	4,082		$	6,774

(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.

Fourth Quarter 2021 Highlights:

• The Company achieved operating income of $1.4 million for the fourth quarter of 2021, as compared to operating income of $3.3 million in the fourth quarter of 2020, which included $2.3 million in net profit related to the real estate transaction noted above.
• Net income of $1.0 million, or $0.03 diluted earnings per share for the fourth quarter of 2021, as compared to net income of $6.3 million, $0.17 diluted earnings per share in the fourth quarter of 2020, which included an income tax benefit of $3.0 million.
• EBITDA totaled $1.5 million in the fourth quarter of 2021 versus EBITDA of $3.4 million in the fourth quarter of 2020 and Adjusted EBITDA (excluding non-cash stock-based compensation) was $1.6 million compared to $3.5 million in the prior-year quarter. EBITDA and Adjusted EBITDA in the fourth quarter of 2020, included $2.3 million in net profit related to the real estate transaction noted above.
• Heritage Global maintains a strong balance sheet, with stockholders’ equity of $32.6 million as of December 31, 2021, compared to $29.9 million as of December 31, 2020, and net working capital of $9.1 million.

Fourth Quarter 2021 Conference Call

Management will host a webcast and conference call today, Thursday, March 17, 2022, at 5:00 pm ET to discuss financial results for fourth quarter 2021. Analysts and investors may participate via conference call, using the following dial-in information:

• 1-844-826-3033 (Domestic)
• 1-412-317-5185 (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 10 minutes prior to the scheduled start time in order to register.

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.

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).

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-

HERITAGE GLOBAL INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (In thousands of US dollars, except share and per share amounts)
		(unaudited) Three Months Ended December 31,										Year Ended December 31,
		2021					2020					2021					2020
Revenues:
Services revenue		$	5,934				$	6,168				$	19,954				$	21,806
Asset sales			1,590					2,163					5,838					4,377
Total revenues			7,524					8,331					25,792					26,183
Operating costs and expenses:
Cost of services revenue			1,264					2,976					4,499					6,320
Cost of asset sales			1,059					1,431					2,929					2,789
Selling, general and administrative			3,677					3,933					14,811					14,449
Depreciation and amortization			166					90					460					362
Total operating costs and expenses			6,166					8,430					22,699					23,920
Earnings of equity method investments			4					3,428					(79	)				3,796
Operating income			1,362					3,329					3,014					6,059
Interest and other expense, net			(28	)				(7	)				(22	)				(45	)
Income before income tax expense (benefit)			1,334					3,322					2,992					6,014
Income tax expense (benefit)			374					(2,995	)				(61	)				(3,644	)
Net income		$	960				$	6,317				$	3,053				$	9,658
Weighted average common shares outstanding – basic			35,974,702					34,318,122					35,458,938					30,200,053
Weighted average common shares outstanding – diluted			37,140,930					37,071,983					36,901,390					32,708,235
Net income per share – basic		$	0.03				$	0.18				$	0.09				$	0.32
Net income per share – diluted		$	0.03				$	0.17				$	0.08				$	0.30

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

-balance sheets follow-

HERITAGE GLOBAL INC. CONSOLIDATED BALANCE SHEETS (In thousands of US dollars, except share amounts)
		December 31,
		2021				2020
ASSETS
Current assets:
Cash and cash equivalents		$	13,622			$	23,385
Accounts receivable			2,732				1,496
Current portion of notes receivable, net			2,254				1,338
Inventory – equipment			3,220				235
Other current assets			1,456				498
Total current assets			23,284				26,952
Non-current portion of notes receivable, net			1,784				748
Equity method investments			4,683				2,402
Right-of-use asset			2,694				963
Property, plant and equipment, net			1,471				130
Intangible assets, net			4,565				3,123
Goodwill			7,446				5,585
Deferred tax assets			4,488				4,402
Other assets			49				250
Total assets		$	50,464			$	44,555
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities		$	11,244			$	13,609
Current portion of third party debt			2,479				—
Current portion of lease liabilities			501				380
Total current liabilities			14,224				13,989
Non-current portion of third party debt			1,352				—
Non-current portion of lease liabilities			2,249				623
Total liabilities			17,825				14,612
Commitments and contingencies (Note 13)
Stockholders’ equity:
Preferred stock, $10.00 par value, authorized 10,000,000 shares; issued and outstanding 565 Series N shares at December 31, 2021 and 568 shares at December 31, 2020			6				6
Common stock, $0.01 par value, authorized 300,000,000 shares; issued and outstanding 36,574,702 shares at December 31, 2021 and 35,281,183 shares at December 31, 2020			366				353
Additional paid-in capital			293,030				293,400
Accumulated deficit			(260,763	)			(263,816	)
Accumulated other comprehensive loss			—				—
Total stockholders’ equity			32,639				29,943
Total liabilities and stockholders’ equity		$	50,464			$	44,555

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

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

HERITAGE GLOBAL INC. Reconciliation of EBITDA and Adjusted EBITDA (Non-GAAP Measures) (In thousands of US dollars) (unaudited)
		Three Months Ended December 31,									Year Ended December 31,
		2021				2020					2021				2020
Net income		$	960			$	6,317				$	3,053			$	9,658
Add back:
Depreciation and amortization			166				90					460				362
Interest and other expense, net			28				7					22				45
Income tax expense (benefit)			374				(2,995	)				(61	)			(3,644	)
EBITDA			1,528				3,419					3,474				6,421
Management add back:
Stock based compensation			95				95					408				353
Separation Agreement			—				—					200				—
Adjusted EBITDA		$	1,623			$	3,514				$	4,082			$	6,774

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

View source version on businesswire.com: https://www.businesswire.com/news/home/20220317005870/en/

John Nesbett/Jennifer Belodeau

IMS Investor Relations

203/972-9200

heritageglobal@imsinvestorrelations.com

Source: Heritage Global Inc.

FAQ

What were Heritage Global's Q4 2021 financial results?

Heritage Global reported Q4 2021 operating income of $1.4 million and net income of $1.0 million.

How did Heritage Global's net income change year over year?

Net income decreased from $6.3 million in Q4 2020 to $1.0 million in Q4 2021.

What is the outlook for Heritage Global regarding non-performing loans?

Heritage Global expects a significant uptick in non-performing loans in 2022.

What is the stockholders' equity for Heritage Global as of December 31, 2021?

Heritage Global's stockholders' equity was $32.6 million as of December 31, 2021.

When will Heritage Global discuss its Q4 2021 results?

Heritage Global will host a conference call on March 17, 2022, at 5:00 pm ET.