Heritage Global Inc. Announces 2019 Third Quarter Operating Results

Heritage Global Inc. (OTCQB: HGBL, CSE: HGP) (“Heritage Global,” “HGI” or “the Company”), a diversified financial services company providing asset-based acquisition, disposition, valuation, and lending services, today reported financial results for the third quarter ended September 30, 2019.

Heritage Global Chief Executive Officer Ross Dove stated, “Heritage Global delivered strong third quarter results highlighted by accelerating growth in revenue and earnings, as we increasingly leverage the Company’s unique and differentiated model. We maintain durable competitive advantages including expertise and relationships built up over our history, global scale, and broad diversification across businesses, products and services, markets, and revenue streams. Over the last 12 months, Heritage Global has generated $4.7 million of Adjusted EBITDA.

“Looking ahead, we remain optimistic about our growth prospects, regardless of the macroeconomic backdrop, given our key strategic initiatives to continue to broaden target markets, ramp up principal investment activities, and build out product and service capabilities. To the point, we recently launched Heritage Global Capital, a new platform providing specialty financing solutions to small- and medium-sized investors in charged-off and nonperforming asset portfolios and other asset-based classes. Over time, we expect Heritage Global Capital to meaningfully enhance the growth, sustainability, and diversification of our revenues.

“In turn, our consistent growth is driving strong and improving financial performance. We remain focused on driving operating efficiencies including recently announced plans to realign our middle market M&A advisory services business, while the continued development of our more predictable fee-based advisory businesses combined with accelerating higher-margin principal activities bodes well for the trajectory and sustainability of our earnings growth.”

Third Quarter 2019 Summary of Financial Results:
($ in thousands, except per share amounts)	Quarter Ended September 30, (Unaudited)					Nine Months Ended September 30, (Unaudited)
	2019			2018		2019			2018
Revenue
Services revenue(1)	$	5,207		$	4,897	$	14,950		$	16,407
Asset sales(2)		1,415			231		5,647			1,351
Total revenue		6,622			5,128		20,597			17,758
Gross profit		5,261			4,229		13,996			15,005
Operating income		1,267			416		3,496			3,451
Net income		1,216			369		3,322			3,343
Net income per share – diluted	$	0.04		$	0.01	$	0.11		$	0.12
(Non-GAAP Financial Measures) (3)
EBITDA	$	1,341		$	495	$	3,722		$	3,847
Adjusted EBITDA	$	1,404		$	568	$	3,932		$	3,909

(1)	Services revenue represents revenue generated from activities in which Heritage Global acted as an agent by either brokering a transaction or providing some other fee-based service.
(2)	Asset sales represent revenue generated from activities in which Heritage Global acted in a principal capacity, reselling previously purchased assets.
(3)	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.

Third Quarter 2019 Highlights:

• Total revenue grew 29% to $6.6 million, compared to the year ago level of $5.1 million, as services revenue increased to $5.2 million from $4.9 million, while asset sales grew to $1.4 million from $0.2 million. Results reflect the Company’s building scale and diversification across businesses and revenue streams.
• Gross profit rose to $5.3 million from $4.2 million in the prior-year quarter as higher total revenue more than offset a step up in cost of revenue. The variability in size and timing of asset sale transactions impacted quarterly comparisons.
• Operating income more than tripled to $1.3 million in the third quarter of 2019 from $0.4 million a year ago, reflecting higher gross profit, a more favorable business mix, ongoing expense discipline, and rising operating leverage.
• Net income was $1.2 million, or $0.04 per share, compared to $0.4 million, or $0.01 per share, in the prior-year quarter.
• EBITDA totaled $1.3 million in the third quarter versus $0.5 million in the prior year, while Adjusted EBITDA (excluding non-cash stock-based compensation expense and the fair value adjustment of contingent consideration) was $1.4 million compared to $0.6 million in the prior year.
• Heritage Global maintains a strong balance sheet, with stockholders’ equity of $11.1 million at the end of the quarter, up 46% compared to $7.6 million at December 31, 2018, and net cash of $3.3 million, representing an increase of 26% over the same period.

Definitions and Disclosures Regarding non-GAAP Financial Information

Adjusted EBITDA reflects the standard definition of EBITDA (net income/loss plus depreciation and amortization, interest and other expense, and provision for income taxes), plus/minus stock-based compensation and fair value adjustment of contingent consideration. Management believes that the presentation of this non-GAAP financial measure, when considered together with GAAP financial measures and the reconciliation to the most directly comparable GAAP financial measure, provides a more complete understanding of the factors and trends affecting the Company than could be obtained absent these disclosures. Management believes that Adjusted EBITDA is a useful supplemental tool to evaluate the underlying operating performance of the Company on an ongoing basis and make operating and strategic decisions. The Company has disclosed this non-GAAP financial measure so that investors have the same financial data that management uses, with the intention of assisting investors to make comparisons to the Company’s historical operating results and analyze its underlying performance. The use of 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 cited in the tables at the end of this press release which reconciles GAAP reported net income to EBITDA and Adjusted EBITDA for the periods presented herein.

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

Heritage Global Inc. (OTCQB: HGBL, CSE: HGP) is a diversified financial services company providing asset-based acquisition, disposition, valuation, and lending services. 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, real estate, 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. The forward-looking statements contained in this communication are based on knowledge of the environment in which the Company currently operates and are subject to change based on various important factors, including variability in magnitude and timing of asset liquidation transactions, the impact of changes in the U.S. national and global economies, 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.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands of US dollars, except share and per share amounts)
(Unaudited)
		Three Months Ended September 30,										Nine Months Ended September 30,
		2019					2018					2019					2018
Revenues:
Services revenue		$		5,207			$		4,897			$		14,950			$		16,407
Asset sales				1,415					231					5,647					1,351
Total revenues				6,622					5,128					20,597					17,758
Operating costs and expenses:
Cost of services revenue				435					710					2,649					2,001
Cost of asset sales				926					189					3,952					752
Selling, general and administrative				3,928					3,734					11,551					11,315
Depreciation and amortization				74					79					226					239
Total operating costs and expenses				5,363					4,712					18,378					14,307
Earnings of equity method investments				8					—					1,277					—
Operating income				1,267					416					3,496					3,451
Fair value adjustment of contingent consideration				—					—					—					157
Interest and other expense, net				(12	)				(47	)				(57	)				(201	)
Income before income tax expense				1,255					369					3,439					3,407
Income tax expense				39					—					117					64
Net income		$		1,216			$		369			$		3,322			$		3,343
Weighted average common shares outstanding – basic				28,653,278					28,653,278					28,653,278					28,557,517
Weighted average common shares outstanding – diluted				29,352,812					28,823,918					28,911,488					28,902,499
Net income (loss) per share – basic		$		0.04			$		0.01			$		0.12			$		0.12
Net income (loss) per share – diluted		$		0.04			$		0.01			$		0.11			$		0.12

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

-balance sheets follow-

HERITAGE GLOBAL INC.
CONSOLIDATED BALANCE SHEETS
(In thousands of US dollars, except share and per share amounts)
		September 30, 2019				December 31, 2018
ASSETS			(unaudited)
Current assets:
Cash and cash equivalents		$	3,901			$	4,268
Accounts receivable			1,722				400
Inventory – equipment			230				2,405
Other current assets			1,463				607
Total current assets			7,316				7,680
Property and equipment, net			196				175
Equity method investments			4,338				2,767
Right-of-use assets			865				—
Identifiable intangible assets, net			3,451				3,627
Goodwill			6,158				6,158
Other assets			224				224
Total assets		$	22,548			$	20,631
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities		$	9,273			$	8,101
Current portion of debt			432				1,178
Current portion of lease liabilities			477				—
Other current liabilities			79				892
Total current liabilities			10,261				10,171
Non-current portion of debt			138				438
Non-current portion of lease liabilities			433				—
Other non-current liabilities			—				1,838
Deferred tax liabilities			584				584
Total liabilities			11,416				13,031
Stockholders’ equity:
Preferred stock, $10.00 par value, authorized 10,000,000 shares; issued and outstanding 569 Class N shares at September 30, 2019 and December 31, 2018			6				6
Common stock, $0.01 par value, authorized 300,000,000 shares; issued and outstanding 29,253,278 shares at September 30, 2019 and December 31, 2018			293				293
Additional paid-in capital			284,961				284,751
Accumulated deficit			(274,051	)			(277,373	)
Accumulated other comprehensive loss			(77	)			(77	)
Total stockholders’ equity			11,132				7,600
Total liabilities and stockholders’ equity		$	22,548			$	20,631

The notes contained in our Quarterly Report on Form 10-Q are an integral part of these 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 September 30,										Nine Months Ended September 30,
		2019					2018					2019					2018
Net income		$		1,216			$		369			$		3,322			$		3,343
Add back:
Depreciation and amortization				74					79					226					239
Interest and other expense, net				12					47					57					201
Income tax expense				39					—					117					64
EBITDA				1,341					495					3,722					3,847
Management add back:
Fair value adjustment of contingent consideration				—					—					—					(157	)
Stock based compensation				63					73					210					219
Adjusted EBITDA		$		1,404			$		568			$		3,932			$		3,909

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

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