- Closes Two Real Estate Transactions in Q2

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 second quarter and six months ended June 30, 2022.

Second Quarter and First Six Months 2022 Summary of Financial Results:

($ in thousands, except per share amounts)	Three Months Ended June 30,				Six Months Ended June 30,
($ in thousands, except per share amounts)	2022		2021		2022		2021
Operating income	$	3,624	$	73	$	4,499	$	1,119
Net income	$	2,578	$	587	$	3,223	$	1,619
Net income per share – diluted	$	0.07	$	0.02	$	0.09	$	0.04

(Non-GAAP Financial Measures)⁽¹⁾
EBITDA	$	3,757	$	171	$	4,765	$	1,308
Adjusted EBITDA	$	3,865	$	239	$	4,979	$	1,719

(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, "As expected, we have seen strong momentum in both our Industrial Assets Division and Financial Assets Division as we move through 2022, evidenced by enhanced profitability and significant growth in net operating income in the second quarter. Specifically, our results reflect a return to pre-pandemic volume levels in our financial asset business, as increased credit card spending by consumers has begun to translate into higher volumes of charged off consumer loans coming to market. On the industrial asset side of our business, we continue to see opportunities related to the sustainable disposal of surplus assets and equipment and we expect this activity to increase as corporations heighten their focus on promoting a circular economy related to the retirement of equipment and machinery.

"We remain bullish about the opportunities we're seeing to drive growth from our diverse revenue streams as we move through the balance of 2022. We expect to continue to achieve strong results given the underlying strength of our diversified business model and the favorable tailwinds we're experiencing in the markets in which we operate. It's important to note that we view the heightened volume in our financial assets division as a return to ‘business as usual' and expect these more normalized volume levels to endure for the foreseeable future, with a steady stream of non-performing loans expected to continue to come to market in the current economic environment.

"On the industrial asset side of the business, the environmentally sound disposition of machinery and equipment is a growing priority for our manufacturing and industrial clients and we remain a go-to resource as these clients identify assets to be brought to auction for repurposing and reuse. As we previously announced, our second quarter performance was favorably impacted by the sale of the two remaining Huntsville real estate assets. Real estate has proven to be a valuable high margin revenue generator for the Company and we'll continue to pursue partnerships and opportunities that have the potential to contribute meaningfully to our growth and profitability."

Second Quarter 2022 Highlights:

The Company achieved operating income of $3.6 million for the second quarter of 2022, as compared to operating income of $73 thousand in the second quarter of 2021. The significant growth in net operating income is attributed to strong performance in both divisions, including $2.6 million of operating income from the final disposition of the Huntsville real estate assets associated with the Company's joint venture partnership.
Net income totaled $2.6 million, or $0.07 diluted earnings per share for the second quarter of 2022, as compared to net income of $587 thousand, $0.02 diluted earnings per share in the second quarter of 2021.
EBITDA totaled $3.8 million in the second quarter of 2022 versus EBITDA of $171 thousand in the second quarter of 2021 and Adjusted EBITDA (excluding non-cash stock-based compensation) was $3.9 million compared to $239 thousand in the prior-year quarter.
Heritage Global maintains a strong balance sheet, with stockholders' equity of $36.0 million as of June 30, 2022, compared to $32.6 million as of December 31, 2021, and net working capital of $10.5 million.

Looking Forward

Mr. Dove commented, "We're very pleased with our strong first half 2022 results. Given our performance to date and the market opportunities we're seeing, we reiterate our previously stated target of full year 2022 net operating income exceeding our best prior annual results of $6.1 million, which was achieved in 2020. We remain intent on leveraging our operational strengths with the favorable market conditions we're experiencing to drive continued profitability."

Second Quarter 2022 Conference Call

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

1-877-272-7661 (Domestic)
1-412-542-4162 (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 August 24, 2022. To access the replay, dial 1-844-512-2921 (domestic) or 1-412-317-6671 (international). The replay pin number is 10169662. 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 June 30,						Six Months Ended June 30,
	2022			2021			2022			2021
Revenues:
Services revenue	$	4,595		$	4,168		$	8,763		$	9,198
Asset sales		6,470			1,008			11,659			3,079
Total revenues		11,065			5,176			20,422			12,277

Operating costs and expenses:
Cost of services revenue		910			960			1,664			2,135
Cost of asset sales		5,631			375			9,033			1,195
Selling, general and administrative		4,939			3,671			9,214			7,640
Depreciation and amortization		133			98			266			189
Total operating costs and expenses		11,613			5,104			20,177			11,159
Earnings of equity method investments (1)		4,172			1			4,254			1
Operating income		3,624			73			4,499			1,119
Interest and other expense, net		(37	)		9			(75	)		12
Income before income tax expense (benefit)		3,587			82			4,424			1,131
Income tax expense (benefit)		1,009			(505	)		1,201			(488	)
Net income	$	2,578		$	587		$	3,223		$	1,619

Weighted average common shares outstanding – basic		36,103,198			35,250,964			36,053,729			35,020,768
Weighted average common shares outstanding – diluted		36,999,614			36,972,415			36,846,539			36,611,234
Net income per share – basic	$	0.07		$	0.02		$	0.09		$	0.05
Net income per share – diluted	$	0.07		$	0.02		$	0.09		$	0.04

(1)

Certain costs related to the disposition of the two Huntsville real estate assets are not reflected in Earnings of equity method investments and are instead included in Cost of asset sales. Net of such costs, the sale of the two assets contributed $2.6 million to operating income in the second quarter.

HERITAGE GLOBAL INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands of US dollars, except share and per share amounts) (unaudited)

	June 30, 2022			December 31, 2021
ASSETS
Current assets:
Cash and cash equivalents	$	16,076		$	13,622
Accounts receivable (net of allowance for doubtful accounts of $122 in 2022 and 2021)		1,912			2,732
Current portion of notes receivable, net		1,941			2,254
Inventory – equipment		3,921			3,220
Other current assets		1,182			1,456
Total current assets		25,032			23,284
Non-current portion of notes receivable, net		464			1,784
Equity method investments		8,244			4,683
Right-of-use assets		2,443			2,694
Property and equipment, net		1,454			1,471
Intangible assets, net		4,355			4,565
Goodwill		7,446			7,446
Deferred tax assets		3,992			4,488
Other assets		49			49
Total assets	$	53,479		$	50,464

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	5,761		$	4,793
Payables to sellers		6,142			6,451
Current portion of third party debt		1,979			2,479
Current portion of lease liabilities		612			501
Total current liabilities		14,494			14,224
Non-current portion of third party debt		1,113			1,352
Non-current portion of lease liabilities		1,899			2,249
Total liabilities		17,506			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 June 30, 2022 and December 31, 2021		6			6
Common stock, $0.01 par value, authorized 300,000,000 shares; issued and outstanding 36,734,087 shares as of June 30, 2022 and 36,574,702 as of December 31, 2021		367			366
Additional paid-in capital		293,245			293,030
Treasury stock at cost, 71,512 shares as of June 30, 2022 and 0 as of December 31, 2021		(105	)		—
Accumulated deficit		(257,540	)		(260,763	)
Total stockholders' equity		35,973			32,639
Total liabilities and stockholders' equity	$	53,479		$	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 June 30,					Six Months Ended June 30,
	2022		2021			2022		2021
Net income	$	2,578	$	587		$	3,223	$	1,619
Add back:
Depreciation and amortization		133		98			266		189
Interest and other expense, net		37		(9	)		75		(12	)
Income tax expense		1,009		(505	)		1,201		(488	)
EBITDA		3,757		171			4,765		1,308

Management add back:
Stock based compensation		108		68			214		211
Separation Agreement		—		—			—		200
Adjusted EBITDA	$	3,865	$	239		$	4,979	$	1,719

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

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Heritage Global Inc. Reports Significant Net Operating Growth in Second Quarter 2022; Achieves Improved Profitability