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Heritage Global Inc. Reports 2017 Third Quarter Operating Results

SAN DIEGO--(BUSINESS WIRE)-- Heritage Global Inc. (OTCQB: HGBL, CSE: HGP) (“Heritage Global,” “HGI” or “the Company”), a value-driven, innovative leader in corporate and financial asset liquidation transactions, valuations and advisory services, today reported financial results for the third quarter ended September 30, 2017 as summarized below.

Quarter Ended

Nine Months Ended

($ in thousands, except per share amounts)

September 30,

September 30,

2017

2016

2017

2016
Revenue
Services revenue(1) $ 4,231 $ 3,824 $ 12,637 $ 11,718
Asset sales(2) 506 4,758 1,915 6,245
Total revenue 4,737 8,582 14,552 17,963
Gross profit 3,933 2,457 10,720 8,733
Operating income (loss) 316 (402 ) 736 (444 )
Net income (loss) 83 (371 ) 138 313
Net income (loss) per share – basic and diluted $ 0.00 $ (0.01 ) $ 0.00 $ 0.01
(Non-GAAP Financial Measures) (3)
EBITDA $ 148 $ (283 ) $ 433 $ 696
Adjusted EBITDA $ 448 $ (312 ) $ 1,155 $ (133 )

(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 assets that it had purchased.

(3)

Definitions and disclosures regarding non-GAAP financial information including reconciliations are included on pages 3 and 6 of the press release.

Third Quarter 2017 Summary of Financial Results:

  • Total revenues were $4.7 million in the third quarter of 2017 compared to $8.6 million during the prior year third quarter. The decrease in total revenues was due to a $4.3 million decline in asset sales revenue related almost entirely to the Company’s sale of its real estate inventory during the prior year period.
  • Excluding $4.1 million of asset sales revenue related to the sale of the Company’s real estate inventory, total revenues of $4.7 million in the third quarter of 2017 increased 4% compared to $4.5 million during the prior year third quarter, while the cost of total revenues decreased by 62% to $0.8 million.
  • Gross profit, or total revenues net of costs of revenues, increased 60% to $3.9 million in the third quarter of 2017 from $2.5 million in the third quarter level of 2016, due principally to the timing and magnitude of certain asset liquidation transactions.
  • During the third quarter, Heritage Global completed a number of successful global online sales, including projects for Amgen, Pfizer, Arena Pharmaceuticals, Channel Technologies Group, V-T Industries, and Mallinckrodt.
  • Selling, general and administrative expenses increased 27% to $3.5 million in the third quarter of 2017 from $2.8 million in the third quarter of 2016. The increase in selling, general and administrative expenses was largely attributable to compensation related items from higher headcount and variable compensation arrangements related to financial results.
  • The continued improvement in Heritage Global’s operations is the result of its stronger performance across most of its business lines, coupled with continued cost management discipline. As a result, Heritage Global reported operating income of $0.3 million in the third quarter of 2017, compared to an operating loss of $0.4 million in the third quarter of 2016.
  • Heritage Global recorded a $0.2 million non-operating loss in the third quarter of 2017 related to the non-cash fair value adjustment of its contingent consideration from the acquisition of National Loan Exchange Inc. (NLEX), compared to a small non-operating gain in the third quarter of 2016.
  • The Company recorded net income of approximately $0.1 million in the third quarter of 2017, or $0.00 per share, compared to a net loss of $0.4 million in the third quarter of 2016, or $0.01 per share.
  • Adjusted EBITDA, a commonly used non-GAAP financial measure, was $0.4 million in the third quarter of 2017, a reversal from the loss of $0.3 million in the third quarter of 2016. Adjusted EBITDA is used 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.

Commenting on the year-to-date and third quarter of 2017 results, Heritage Global Chief Executive Officer, Ross Dove, stated, “Heritage Global’s operating momentum continued in the third quarter as we delivered another period of strong financial performance, resulting in a 60% increase in gross profit compared to the prior year period. The ongoing execution of our strategies to grow our value-driven corporate and financial asset solutions platform, coupled with our continued cost management discipline, resulted in significant gross margin improvement and adjusted EBITDA growth to $1.2 million in the first nine months of 2017.

“HGI remains committed to our plan to strategically grow our portfolio of global asset solutions by adding complementary capabilities that serve a broad range of businesses, while creating added value for our corporate clients and customers. In order to have the financial flexibility to support our near and long-term growth initiatives, we remain focused on actively managing our capital structure to maximize cash flow. In this regard, during the first nine months of 2017 repaid $0.5 million in related third party debt, while increasing our cash and cash equivalents by 17% compared to year-end 2016.

“We are pleased with the initial success of our expansion initiatives and the progress we have made year-to-date in improving the Company’s financial performance and profitability. With a culture rooted in entrepreneurship and innovation, Heritage Global continues to increase the collaboration between our business divisions focused on auction services, investment banking, patents and trademarks, receivables and real estate services in order to bring a comprehensive suite of diversified global asset solutions to market. Looking ahead, we expect the positive operating momentum to continue in the fourth quarter and remain confident that this direction will enable us to meet our goal of enhancing long-term shareholder value.”

Definitions and Disclosures Regarding non-GAAP Financial Information

Adjusted EBITDA reflects the standard definition of EBITDA (net income plus depreciation and amortization, interest and other expense, and provision for income taxes), adjusted further to eliminate the effects of fair value adjustments of contingent consideration and stock-based compensation. Management believes that the presentation of this non-GAAP financial measure, when considered together with the 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 uses Adjusted EBITDA to make operating and strategic decisions and to evaluate the Company’s performance. 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. Management believes that Adjusted EBITDA is a useful supplemental tool to evaluate the underlying operating performance of the Company on an ongoing basis. 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 news announcement which reconciles GAAP reported net income to Adjusted EBITDA for the periods presented herein.

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

Heritage Global Inc. (OTCQB: HGBL, CSE: HGP) is a value-driven, innovative leader in corporate and financial asset liquidation transactions, valuations and advisory services. Heritage Global focuses on identifying, valuing, acquiring and monetizing underlying tangible and intangible assets in twenty-eight global manufacturing and technology sectors. Heritage Global 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.

HERITAGE GLOBAL INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands of US dollars, except share and per share amounts)

(unaudited)

Three Months Ended

Nine Months Ended

September 30,

September 30,

2017 2016 2017 2016
Revenues:
Services revenue $ 4,231 $ 3,824 $ 12,637 $ 11,718
Asset sales 506 4,758 1,915 6,245
Total revenues 4,737 8,582 14,552 17,963
Operating costs and expenses:
Cost of services revenue 522 1,882 2,291 3,751
Cost of asset sales 282 4,243 1,541 5,479
Selling, general and administrative 3,539 2,783 9,751 8,937
Depreciation and amortization 78 76 233 240
Total operating costs and expenses 4,421 8,984 13,816 18,407
Operating income (loss) 316 (402 ) 736 (444 )
Fair value adjustment of contingent consideration (246 ) 43 (536 ) 900
Interest and other expense, net 3 (1 ) (44 ) (114 )
Income (loss) before income tax expense 73 (360 ) 156 342
Income tax (benefit) expense (10 ) 11 18 29
Net income (loss) $ 83 $ (371 ) $ 138 $ 313
Weighted average common shares outstanding – basic 28,480,148 28,432,648 28,464,635 28,390,221
Weighted average common shares outstanding – diluted 28,481,296 28,432,648 28,474,997 28,399,759
Net income (loss) per share – basic $ 0.00 $ (0.01 ) $ 0.00 $ 0.01
Net income (loss) per share – diluted $ 0.00 $ (0.01 ) $ 0.00 $ 0.01

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

HERITAGE GLOBAL INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands of US dollars, except share and per share amounts)

(unaudited)

September 30,

December 31,

2017

2016

ASSETS
Current assets:
Cash and cash equivalents $ 2,959 $ 2,530
Accounts receivable, (net of allowance for doubtful accounts of $35; $36 in 2016) 654 1,247
Inventory – equipment 142 263
Other current assets 370 393
Total current assets 4,125 4,433
Property and equipment, net 126 156
Identifiable intangible assets, net 3,938 4,122
Goodwill 6,158 6,158
Other assets 273 275
Total assets $ 14,620 $ 15,144
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 6,823 $ 6,746
Current portion of related party debt 541 664
Current portion of contingent consideration 1,637 961
Other current liabilities 109 199
Total current liabilities 9,110 8,570
Non-current portion of related party debt - 348
Non-current portion of contingent consideration 735 1,772
Deferred tax liabilities 960 960
Total liabilities 10,805 11,650
Stockholders’ equity:

Preferred stock, $10.00 par value, authorized 10,000,000 shares; issued and outstanding 569 Class N shares at September 30, 2017 and December 31, 2016

6 6

Common stock, $0.01 par value, authorized 300,000,000 shares; issued and outstanding 28,480,148 shares at September 30, 2017 and 28,470,148 shares at December 31, 2016

285 285
Additional paid-in capital 284,336 284,149
Accumulated deficit (280,737 ) (280,875 )
Accumulated other comprehensive loss (75 ) (71 )
Total stockholders’ equity 3,815 3,494
Total liabilities and stockholders’ equity $ 14,620 $ 15,144

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

HERITAGE GLOBAL INC.

Reconciliation of EBITDA and Adjusted EBITDA (Non-GAAP Measures)

(In thousands of US dollars)

(unaudited)

Three Months Ended

Nine Months Ended

September 30,

September 30,

2017 2016 2017 2016
Net Income $ 83 $ (371 ) $ 138 $ 313
Add back:
Depreciation and amortization 78 76 233 240
Interest and other expense, net (3 ) 1 44 114
Income tax (benefit) expense (10 ) 11 18 29
EBITDA 148 (283 ) 433 696
Management add back:
Fair value adjustment of contingent consideration 246 (43 ) 536 (900 )
Stock based compensation 54 14 186 71
Adjusted EBITDA $ 448 $ (312 ) $ 1,155 $ (133 )

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: http://www.businesswire.com/news/home/20171106006489/en/

Heritage Global Inc.
Scott West, 858-847-0656
Chief Financial Officer
or
JCIR
Jennifer Neuman, Joseph Jaffoni
HGBL@jcir.com or 212-835-8500

Source: Heritage Global Inc.