Heritage Global Inc. Achieves Significant Growth and Record Net Operating Income in the Third Quarter Of 2022

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 third quarter and nine months ended September 30, 2022.

Third Quarter and First Nine Months 2022 Summary of Financial Results:

($ in thousands, except per share amounts)	Three Months Ended September 30,					Nine Months Ended September 30,
	2022			2021		2022			2021
Operating income	$	3,474		$	533	$	7,973		$	1,652
Net income	$	2,300		$	474	$	5,523		$	2,093
Net income per share – diluted	$	0.06		$	0.01	$	0.15		$	0.06
(Non-GAAP Financial Measures) (1)
EBITDA	$	3,608		$	638	$	8,373		$	1,946
Adjusted EBITDA	$	3,778		$	740	$	8,757		$	2,459

(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.

Heritage Global Chief Executive Officer Ross Dove commented, “Our very strong third quarter results continued the momentum we have built throughout 2022 and were highlighted by a milestone achievement as all five of the Company’s revenue streams performed at or above our expectations. Strong demand and high volumes in both our Industrial and Financial Assets divisions combined to contribute to record net operating income and significantly improved profitability in the third quarter.

“Our Financial Asset business saw a dramatic increase in volume during the quarter, continuing the return to pre-pandemic volume levels that began in the second quarter of 2022. The current economic environment is driving increased credit card spending which in turn is resulting in more charged off consumer loans available to the market, especially with the end of Covid driven aid programs. With a steady stream of non-performing loans expected to continue to come to market, as we move through the close of 2022 and into 2023, we have high expectations for continued growth on this side of our business. Likewise, on the industrial asset side, auction activity is thriving, related to the increasing focus on the environmentally responsible disposal of surplus assets and equipment. In addition to opportunities with new customers, during the quarter we signed contract extensions with two of our largest partners from the pharmaceutical industry, validating our industry-leading position in the biopharma space. On a related note, American Laboratory Trading (“ALT”) is performing above our expectations in our first full year of ownership and has proven to be an excellent source of auctions for Heritage Global Partners (“HGP”).

“We are pleased with the very strong performance and the growth we have achieved from our diverse revenue streams to date in 2022. Our balanced business model provides a strong foundation for growth and that, coupled with economic tailwinds that benefit our businesses, point to what we believe will be a strong fourth quarter and 2023 for our Financial and Industrial Asset divisions.”

Third Quarter 2022 Highlights:

• The Company achieved operating income of $3.5 million for the third quarter of 2022, as compared to operating income of $533 thousand in the third quarter of 2021. The significant growth in net operating income is attributed to strong performance in both divisions.
• Net income totaled $2.3 million, or $0.06 diluted earnings per share for the third quarter of 2022, as compared to net income of $474 thousand, or $0.01 diluted earnings per share in the third quarter of 2021.
• EBITDA totaled $3.6 million in the third quarter of 2022 versus EBITDA of $638 thousand in the third quarter of 2021 and Adjusted EBITDA (excluding non-cash stock-based compensation) was $3.8 million compared to $740 thousand in the prior-year quarter.
• Heritage Global maintains a strong balance sheet, with stockholders’ equity of $38.3 million as of September 30, 2022, compared to $32.6 million as of December 31, 2021, and net working capital of $13.0 million.
• As of September 30, 2022, the Company has repurchased a total of 183,699 shares of its common stock for an aggregate amount of $295,701.

Looking Forward

Mr. Dove commented, “We have driven strong results to date in 2022. With our visibility today, and our optimism around the opportunities we’re seeing in the marketplace, we are raising our target for full year 2022 net operating income to $9.0 million, which surpasses our best prior annual results of $6.1 million, achieved in 2020. With continued solid operational execution, we believe we are well positioned to generate continued growth and drive profitability.”

Third Quarter 2022 Conference Call

Management will host a webcast and conference call today, Thursday, November 10, 2022, at 5:00 pm ET to discuss financial results for third quarter 2022. Analysts and investors may participate via conference call, using the following dial-in information:

• 1-877-329-6284 (Domestic)
• 1-416-641-6202 (International)

The conference call will also 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.

Replay

A replay of the call will be available on the Company's website approximately two hours after the live call through November 24, 2022. To access the replay, dial 1-844-512-2921 (domestic) or 1-412-317-6671 (international). The replay pin number is 22021030. The replay can also be accessed on the Investor Relations section of the Company's website.

About Heritage Global Inc.

Heritage Global Inc. (“HG”) 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, account receivable portfolios, and intellectual property 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-

HERITAGE GLOBAL INC.
CONDENSED 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,
		2022				2021				2022				2021
Revenues:
Services revenue		$	7,349			$	4,822			$	16,112			$	14,020
Asset sales			5,312				1,169				16,971				4,248
Total revenues			12,661				5,991				33,083				18,268
Operating costs and expenses:
Cost of services revenue			2,051				1,100				3,715				3,235
Cost of asset sales			3,015				675				12,048				1,870
Selling, general and administrative			5,693				3,494				14,907				11,134
Depreciation and amortization			134				105				400				294
Total operating costs and expenses			10,893				5,374				31,070				16,533
Earnings of equity method investments			1,706				(84	)			5,960				(83	)
Operating income			3,474				533				7,973				1,652
Interest and other expense, net			(21	)			(6	)			(96	)			6
Income before income tax expense (benefit)			3,453				527				7,877				1,658
Income tax expense (benefit)			1,153				53				2,354				(435	)
Net income		$	2,300			$	474			$	5,523			$	2,093
Weighted average common shares outstanding – basic			36,084,696				35,805,227				36,014,439				35,285,128
Weighted average common shares outstanding – diluted			37,221,430				37,090,294				36,872,977				36,567,713
Net income per share – basic		$	0.06			$	0.01			$	0.15			$	0.06
Net income per share – diluted		$	0.06			$	0.01			$	0.15			$	0.06

HERITAGE GLOBAL INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands of US dollars, except share and per share amounts) (unaudited)
		September 30, 2022				December 31, 2021
ASSETS
Current assets:
Cash and cash equivalents		$	17,482			$	13,622
Accounts receivable (net of allowance for doubtful accounts of $122 in 2022 and 2021)			1,670				2,732
Current portion of notes receivable, net			1,341				2,254
Inventory – equipment			4,822				3,220
Other current assets			1,160				1,456
Total current assets			26,475				23,284
Non-current portion of notes receivable, net			751				1,784
Equity method investments			8,499				4,683
Right-of-use assets			2,933				2,694
Property and equipment, net			1,481				1,471
Intangible assets, net			4,250				4,565
Goodwill			7,446				7,446
Deferred tax assets			3,117				4,488
Other assets			64				49
Total assets		$	55,016			$	50,464
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities		$	6,323			$	4,793
Payables to sellers			5,890				6,451
Current portion of third party debt			531				2,479
Current portion of lease liabilities			714				501
Total current liabilities			13,458				14,224
Non-current portion of third party debt			993				1,352
Non-current portion of lease liabilities			2,293				2,249
Total liabilities			16,744				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 September 30, 2022 and December 31, 2021			6				6
Common stock, $0.01 par value, authorized 300,000,000 shares; issued and outstanding 36,932,177 shares as of September 30, 2022 and 36,574,702 shares as of December 31, 2021			369				366
Additional paid-in capital			293,433				293,030
Treasury stock at cost, 183,699 shares as of September 30, 2022 and 0 shares as of December 31, 2021			(296	)			—
Accumulated deficit			(255,240	)			(260,763	)
Total stockholders’ equity			38,272				32,639
Total liabilities and stockholders’ equity		$	55,016			$	50,464

– 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,
		2022				2021				2022				2021
Net income		$	2,300			$	474			$	5,523			$	2,093
Add back:
Depreciation and amortization			134				105				400				294
Interest and other expense, net			21				6				96				(6	)
Income tax expense			1,153				53				2,354				(435	)
EBITDA			3,608				638				8,373				1,946
Management add back:
Stock based compensation			170				102				384				313
Separation Agreement			—				—				—				200
Adjusted EBITDA		$	3,778			$	740			$	8,757			$	2,459

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

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The Heritage Global Stock at the time of publication of the news with a fall of -2,50 % to 1,950EUR on Frankfurt stock exchange (10. November 2022, 08:02 Uhr).