Heritage Global Inc. Reports Profitable First Quarter 2022 Results; Positioned to Benefit From Industry Tailwinds for Both Industrial and Financial Businesses

Rhea-AI Summary

Heritage Global Inc. (NASDAQ: HGBL) reported its Q1 2022 financial results, showing net income of $645K or $0.02 per share, a decline from the previous year's $1.0M. Operating income also fell to $875K. EBITDA reached $1.0M, down from $1.1M in Q1 2021. The company anticipates closing two real estate transactions contributing over $2.5 million in profit and has initiated a $4 million share repurchase program. CEO Ross Dove expressed optimism about 2022, targeting net operating income exceeding $6.1 million.

Positive

• Anticipated to close two real estate transactions contributing over $2.5 million in combined net profit.
• Share repurchase program approved for up to $4 million, aimed at enhancing shareholder value.
• CEO projects full-year 2022 net operating income exceeding $6.1 million.

Negative

• Net income declined to $645K from $1.0 million, signaling potential profitability concerns.
• Operating income decreased to $875K from $1.0 million, indicating revenue pressure.
• EBITDA fell to $1.0 million, down from $1.1 million, suggesting weakening operational performance.

– Anticipated To Close Two Real Estate Transactions in Q2 or Q3; Expected To Contribute Over $2.5 Million In Combined Net Profit –

– Board Approves Share Repurchase Program –

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 first quarter ended March 31, 2022.

First Quarter 2022 Summary of Financial Results:

($ in thousands, except per share amounts)	Three Months Ended March 31,
	2022			2021
Operating income	$	875		$	1,046
Net income	$	645		$	1,032
Net income per share – diluted	$	0.02		$	0.03
(Non-GAAP Financial Measures) (1)
EBITDA	$	1,008		$	1,137
Adjusted EBITDA	$	1,114		$	1,480

(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, “2022 is off to a solid start, and we are pleased to have delivered continued profitability and EBITDA of $1.0 million in the first quarter. With our visibility today we are increasingly optimistic about the balance of 2022. Our business model includes diverse revenue streams and we are extremely well positioned in both our Financial Assets Division and our Industrial Assets Division to capitalize on improving market dynamics. We are seeing a clear transition from headwind conditions to tailwind conditions, and we are moving aggressively to seize the opportunities being created in this more favorable environment.

“There has been a great deal of public commentary on the significant rise in consumer spending, and with the end of Covid-related stimulus payments, we are starting to see a higher volume of charged-off consumer loans coming to market. Likewise, with the current inflationary macroeconomic conditions, more and more financial institutions are pointing to a recession as a market likelihood, which we believe will lead to a significant increase in non-performing loans as we move through the year. We are ready to facilitate the sale of that volume when it materializes.

“The opportunity pipeline for our Industrial Assets Division is robust and growing. The manufacturing and industrial sector -- the primary clients for this portion of our business -- are increasingly focused on promoting a sustainable circular economy when it comes to the disposal of surplus assets and equipment. We are uniquely positioned to help these clients bring their assets to auction for reuse and recycling. Additionally, our recent acquisition of ALT (American Laboratory Trading) has been fully integrated and strengthens our position in the biotech and pharma sectors, providing an outlet for the resale of refurbished lab equipment.

“We also continue to pursue strategic real estate opportunities, which has proven to be a high margin revenue stream for us. Subsequent to the close of the quarter, we announced that we are part of a partnership that has acquired two pharmaceutical plants in St. Louis, Missouri. We anticipate that the sale of these facilities will follow a template similar to our successful Huntsville partnership, which encompasses three buildings, one of which sold in a fiscal 2020 transaction that resulted in $2.3 million net profit to Heritage. It is our expectation that we will close the sale of the two remaining Huntsville real estate transactions in Q2 or Q3 of this year and that on a combined basis they will contribute over $2.5 million in net profit.”

First Quarter 2022 Highlights:

• The Company achieved operating income of $875 thousand for the first quarter of 2022, as compared to operating income of $1.0 million in the first quarter of 2021.
• Net income totaled $645 thousand, or $0.02 diluted earnings per share for the first quarter of 2022, as compared to net income of $1.0 million, $0.03 diluted earnings per share in the first quarter of 2021.
• EBITDA totaled $1.0 million in the first quarter of 2022 versus EBITDA of $1.1 million in the first quarter of 2021 and Adjusted EBITDA (excluding non-cash stock-based compensation) was $1.1 million compared to $1.5 million in the prior-year quarter.
• Heritage Global maintains a strong balance sheet, with stockholders’ equity of $33.4 million as of March 31, 2022, compared to $32.6 million as of December 31, 2021, and net working capital of $8.8 million.

Looking Forward

Mr. Dove commented, “As we continue through 2022, we expect accelerating tailwinds across all five of our business units. With that in mind and given what we are currently seeing in the marketplace, we are targeting full year 2022 net operating income exceeding our best prior annual results of $6.1 million, which was achieved in 2020. We are energized to execute on all fronts and to harness the opportunities we are seeing to drive growth and continued profitability.”

Share Repurchase Program

Heritage Global Inc. today announced that its Board of Directors has authorized a share repurchase program which permits the Company to purchase up to an aggregate of $4 million in common shares over a three-year period.

Mr. Dove commented, “We believe our shares are currently undervalued and given Heritage’s unique position in the marketplace, consistent profitability, and encouraging near to long-term outlook, an opportunity exists to create value for our shareholders.”

First Quarter 2022 Conference Call

Management will host a webcast and conference call today, Thursday, May 12, 2022, at 5:00 pm ET to discuss financial results for the first quarter 2022. 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. (https://hginc.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. We focus on identifying, valuing, acquiring and monetizing underlying tangible and intangible assets across more than twenty-five 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. 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 March 31,
		2022				2021
Revenues:
Services revenue		$	4,168			$	5,030
Asset sales			5,189				2,071
Total revenues			9,357				7,101
Operating costs and expenses:
Cost of services revenue			754				1,175
Cost of asset sales			3,402				820
Selling, general and administrative			4,275				3,969
Depreciation and amortization			133				91
Total operating costs and expenses			8,564				6,055
Earnings of equity method investments			82				—
Operating income			875				1,046
Interest and other expense, net			(38	)			3
Income before income tax expense			837				1,049
Income tax expense			192				17
Net income		$	645			$	1,032
Weighted average common shares outstanding – basic			36,003,709				34,788,016
Weighted average common shares outstanding – diluted			36,749,198				37,533,065
Net income per share – basic		$	0.02			$	0.03
Net income per share – diluted		$	0.02			$	0.03

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 and per share amounts) (unaudited)
		March 31, 2022				December 31, 2021
ASSETS
Current assets:
Cash and cash equivalents		$	15,097			$	13,622
Accounts receivable (net of allowance for doubtful accounts of $122 in 2022 and 2021)			2,882				2,732
Current portion of notes receivable, net			2,088				2,254
Inventory – equipment			2,857				3,220
Other current assets			1,224				1,456
Total current assets			24,148				23,284
Non-current portion of notes receivable, net			1,078				1,784
Equity method investments			6,544				4,683
Right-of-use assets			2,569				2,694
Property and equipment, net			1,456				1,471
Intangible assets, net			4,460				4,565
Goodwill			7,446				7,446
Deferred tax assets			4,358				4,488
Other assets			49				49
Total assets		$	52,108			$	50,464
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities		$	3,123			$	4,793
Payables to sellers			9,774				6,451
Current portion of third party debt			1,979				2,479
Current portion of lease liabilities			505				501
Total current liabilities			15,381				14,224
Non-current portion of third party debt			1,233				1,352
Non-current portion of lease liabilities			2,127				2,249
Total liabilities			18,741				17,825
Stockholders’ equity:
Preferred stock, $10.00 par value, authorized 10,000,000 shares; issued and outstanding 565 shares of Series N as of March 31, 2022 and December 31, 2021			6				6
Common stock, $0.01 par value, authorized 300,000,000 shares; issued and outstanding 36,677,837 shares as of March 31, 2022 and 36,574,702 as of December 31, 2021			367				366
Additional paid-in capital			293,112				293,030
Accumulated deficit			(260,118	)			(260,763	)
Total stockholders’ equity			33,367				32,639
Total liabilities and stockholders’ equity		$	52,108			$	50,464

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 March 31,
		2022			2021
Net income		$	645		$	1,032
Add back:
Depreciation and amortization			133			91
Interest and other expense, net			38			(3	)
Income tax expense			192			17
EBITDA			1,008			1,137
Management add back:
Stock based compensation			106			143
Separation Agreement			—			200
Adjusted EBITDA		$	1,114		$	1,480

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/20220512005977/en/

John Nesbett/Jennifer Belodeau

IMS Investor Relations

203-972-9200

heritageglobal@imsinvestorrelations.com

Source: Heritage Global Inc.

FAQ

What were Heritage Global's financial results for Q1 2022?

Heritage Global reported a net income of $645K and operating income of $875K for Q1 2022.

What is the stock symbol for Heritage Global?

The stock symbol for Heritage Global is HGBL.

How much net profit is expected from the upcoming real estate transactions?

Heritage Global expects to gain over $2.5 million in net profit from two anticipated real estate transactions.

What share repurchase program has Heritage Global announced?

Heritage Global has authorized a share repurchase program allowing for the purchase of up to $4 million in common shares.

What is the target net operating income for Heritage Global in 2022?

Heritage Global is targeting a full-year net operating income exceeding $6.1 million for 2022.