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SAN DIEGO–(BUSINESS WIRE)–Heritage Global Inc. (OTCQB: HGBL, CSE: HGP) (“Heritage Global,” “HGI” or “the Company”), a global diversified financial services and asset trading company with industry-leading capabilities across corporate and financial asset monetization, advisory, and valuation services, today reported financial results for the second quarter ended June 30, 2019.

Heritage Global Chief Executive Officer Ross Dove stated, “Heritage Global delivered strong second quarter results highlighted by solid performance across a more diversified and higher-margin fee base and continued profitability. While quarterly gross profits and net income were somewhat skewed by variability in the timing of asset sales transactions, the underlying strength in EBITDA, net income, and EPS remains consistent. Furthermore, we enhanced our financial flexibility, which bolsters our growth prospects – via strategic/complimentary acquisitions, joint ventures, or organic opportunities – with a strong balance sheet, ample liquidity, and growing net cash from operations.

More broadly, we remain focused on becoming the preferred solution and most respected and trusted firm to corporations, trustees and lenders needing to monetize challenged assets across all classes and geographies. Beyond the firm’s sustainable competitive advantages, including domain expertise and a unique business model, more specific strategic growth initiatives include building our principal activity, ongoing product and services development, target market extensions, as well as capitalizing on external growth opportunities, as appropriate. From an operational standpoint, we remain well positioned to take advantage of our increasing operating leverage, which will build our profitability. Further, we are actively seeking to improve our earnings visibility and sustainability, reflecting the scale and diversification we have achieved, as well as our efforts to more fully leverage systems and practices across the franchise.

Stepping back, despite rising uncertainty around global economic growth, interest rates, and capital markets, our diversified and differentiated value proposition is increasingly resonating across an expanding range of clients, which we believe positions the company well for accelerating and more sustainable growth across varied economic conditions.”

Second Quarter 2019 Summary of Financial Results:

($ in thousands, except per share amounts)

Quarter Ended

June 30,

Six Months Ended

June 30,

2019

 

2018

2019

 

2018

Revenue

 

 

 

 

 

 

Services revenue(1)

$

5,335

 

$

6,471

$

9,473

 

$

11,510

Asset sales(2)

 

2,089

 

 

345

 

4,232

 

 

1,120

Total revenue

 

7,424

 

 

6,816

 

13,975

 

 

12,630

Gross profit

 

4,075

 

 

5,790

 

8,735

 

 

10,776

Operating income

 

1,570

 

 

1,630

 

2,229

 

 

3,035

Net income

 

1,494

 

 

1,685

 

2,106

 

 

2,974

Net income per share – basic and diluted

$

0.05

 

$

0.06

$

0.07

 

$

0.10

 

 

 

 

 

 

 

(Non-GAAP Financial Measures) (3)

 

 

 

 

 

 

EBITDA

$

1,646

 

$

1,863

$

2,381

 

$

3,352

Adjusted EBITDA

$

1,722

 

$

1,791

$

2,528

 

$

3,341

(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.

Second Quarter 2019 Highlights:

  • Total revenue grew 9% to $7.4 million, compared to the year ago level of $6.8 million, as asset sales increased to $2.1 million from $0.3 million, offsetting a $1.1 million decrease in services revenue. Importantly, revenue contributions across service revenue and asset sales were more balanced during the quarter as principal activity built.
  • Gross profit was $4.5 million compared to $5.8 million in the prior-year quarter reflecting higher cost of revenue during the period, largely reflecting the variability in size and timing of asset sale transactions.
  • Operating income was roughly flat year-over-year at $1.6 million in the second quarter of 2019. The timing-related decline in gross profit was offset by $1.3 million of earnings from equity method investments related to the company’s Real Estate Joint Venture.
  • Net income was $1.5 million, or $0.05 per share, compared to $1.7 million, or $0.06 per share, in the prior year. Aside from the noted quarterly gross profit variability, earnings per share for the second quarter of 2018 included a $0.2 million pre-tax benefit related to a fair value adjustment of contingent consideration, effectively resulting in flat year over year performance.
  • EBITDA totaled $1.6 million in the second quarter versus $1.9 million in the prior year, while Adjusted EBITDA (excluding non-cash stock-based compensation expense and the fair value adjustment of contingent consideration) was $1.7 million compared to $1.8 million in the prior year. Over the last 12 months, Heritage Global has generated $3.9 million of Adjusted EBITDA.
  • Heritage Global’s balance sheet has strengthened considerably since the end of 2018, with stockholders’ equity increasing 29% to $9.8 million from $7.6 million at December 31, 2018, and net cash increasing 18% to $3.1 million 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. 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 global diversified financial services and asset trading company with industry-leading capabilities across corporate and financial asset monetization, advisory, and valuation 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, 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

June 30,

 

 

Six Months Ended

June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Services revenue

 

$

5,335

 

 

$

6,471

 

 

$

9,743

 

 

$

11,510

 

Asset sales

 

 

2,089

 

 

 

345

 

 

 

4,232

 

 

 

1,120

 

Total revenues

 

 

7,424

 

 

 

6,816

 

 

 

13,975

 

 

 

12,630

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of services revenue

 

 

1,483

 

 

 

732

 

 

 

2,214

 

 

 

1,291

 

Cost of asset sales

 

 

1,866

 

 

 

294

 

 

 

3,026

 

 

 

563

 

Selling, general and administrative

 

 

3,698

 

 

 

4,084

 

 

 

7,623

 

 

 

7,581

 

Depreciation and amortization

 

 

76

 

 

 

76

 

 

 

152

 

 

 

160

 

Total operating costs and expenses

 

 

7,123

 

 

 

5,186

 

 

 

13,015

 

 

 

9,595

 

Earnings of equity method investments

 

 

1,269

 

 

 

 

 

 

1,269

 

 

 

 

Operating income

 

 

1,570

 

 

 

1,630

 

 

 

2,229

 

 

 

3,035

 

Fair value adjustment of contingent consideration

 

 

 

 

 

157

 

 

 

 

 

 

157

 

Interest and other expense, net

 

 

(22

)

 

 

(38

)

 

 

(45

)

 

 

(154

)

Income before income tax expense

 

 

1,548

 

 

 

1,749

 

 

 

2,184

 

 

 

3,038

 

Income tax expense

 

 

54

 

 

 

64

 

 

 

78

 

 

 

64

 

Net income

 

$

1,494

 

 

$

1,685

 

 

$

2,106

 

 

$

2,974

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding – basic

 

 

28,653,278

 

 

 

28,653,278

 

 

 

28,653,278

 

 

 

28,508,844

 

Weighted average common shares outstanding – diluted

 

 

28,842,509

 

 

 

29,067,365

 

 

 

29,017,377

 

 

 

28,916,149

 

Net income (loss) per share – basic

 

$

0.05

 

 

$

0.06

 

 

$

0.07

 

 

$

0.10

 

Net income (loss) per share – diluted

 

$

0.05

 

 

$

0.06

 

 

$

0.07

 

 

$

0.10

 

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)

 

 

 

June 30,

2019

 

 

December 31,

2018

 

ASSETS

 

 

(unaudited)

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

3,751

 

 

$

4,268

 

Accounts receivable

 

 

2,769

 

 

 

400

 

Inventory – equipment

 

 

540

 

 

 

2,405

 

Other current assets

 

 

654

 

 

 

607

 

Total current assets

 

 

7,714

 

 

 

7,680

 

Property and equipment, net

 

 

181

 

 

 

175

 

Equity method investments

 

 

4,213

 

 

 

2,767

 

Right-of-use assets

 

 

985

 

 

 

 

Identifiable intangible assets, net

 

 

3,509

 

 

 

3,627

 

Goodwill

 

 

6,158

 

 

 

6,158

 

Other assets

 

 

224

 

 

 

224

 

Total assets

 

$

22,984

 

 

$

20,631

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

$

10,849

 

 

$

8,101

 

Current portion of debt

 

 

391

 

 

 

1,178

 

Current portion of lease liabilities

 

 

506

 

 

 

 

Other current liabilities

 

 

30

 

 

 

892

 

Total current liabilities

 

 

11,776

 

 

 

10,171

 

Non-current portion of debt

 

 

240

 

 

 

438

 

Non-current portion of lease liabilities

 

 

531

 

 

 

 

Other non-current liabilities

 

 

 

 

 

1,838

 

Deferred tax liabilities

 

 

584

 

 

 

584

 

Total liabilities

 

 

13,131

 

 

 

13,031

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, $10.00 par value, authorized 10,000,000 shares; issued and outstanding 569 Class N shares at June 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 June 30, 2019 and December 31, 2018

 

 

293

 

 

 

293

 

Additional paid-in capital

 

 

284,898

 

 

 

284,751

 

Accumulated deficit

 

 

(275,267

)

 

 

(277,373

)

Accumulated other comprehensive loss

 

 

(77

)

 

 

(77

)

Total stockholders’ equity

 

 

9,853

 

 

 

7,600

 

Total liabilities and stockholders’ equity

 

$

22,984

 

 

$

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

June 30,

 

 

Six Months Ended

June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Net income

 

$

1,494

 

 

$

1,685

 

 

$

2,106

 

 

$

2,974

 

Add back:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

76

 

 

 

76

 

 

 

152

 

 

 

160

 

Interest and other expense, net

 

 

22

 

 

 

38

 

 

 

45

 

 

 

154

 

Income tax expense

 

 

54

 

 

 

64

 

 

 

78

 

 

 

64

 

EBITDA

 

 

1,646

 

 

 

1,863

 

 

 

2,381

 

 

 

3,352

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Management add back:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair value adjustment of contingent consideration

 

 

 

 

 

(157

)

 

 

 

 

 

(157

)

Stock based compensation

 

 

76

 

 

 

85

 

 

 

147

 

 

 

146

 

Adjusted EBITDA

 

$

1,722

 

 

$

1,791

 

 

$

2,528

 

 

$

3,341

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

Contacts

Scott West

Chief Financial Officer

Heritage Global Inc.

858/847-0656

Investor Relations

InvestorRelations@hginc.com

858/242-4741